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EX-23 - EXHIBIT 23 - CREATIVE REALITIES, INC.exhibitfy0923.htm
EX-21 - EXHIBIT 21 - CREATIVE REALITIES, INC.exhibitfy0921.htm
EX-32.1 - EXHIBIT 32.1 - CREATIVE REALITIES, INC.exhibitfy09321.htm
EX-10.9 - EXHIBIT 10.9 - CREATIVE REALITIES, INC.exhibitfy09109.htm
EX-32.2 - EXHIBIT 32.2 - CREATIVE REALITIES, INC.exhibitfy09322.htm
EX-31.2 - EXHIBIT 31.2 - CREATIVE REALITIES, INC.exhibitfy09312.htm
EX-31.1 - EXHIBIT 31.1 - CREATIVE REALITIES, INC.exhibitfy09311.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K
 
(Mark one)
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33169
 
 
Wireless Ronin Technologies, Inc.
(Exact name of registrant as specified in its charter)
 
 
Minnesota
 
41-1967918
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
5929 Baker Road, Suite 475, Minnetonka MN  55345
 (Address of principal executive offices)     ( Zip Code)
(952) 564-3500
(Registrant’s telephone  number, including area code)
     
Securities registered pursuant to Section 12(b) of the Exchange Act:
Common Stock ($0.01 par value)
 
Nasdaq Global Market
(Title of class)
 
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Exchange Act:  None
 
    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No ý
 
    Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes o No ý
 
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes ý  No o
 
    Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨
 
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer o   (Do not check if a smaller reporting company)  Smaller reporting company  ý
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  o Yes  ý No
 
    The aggregate market value of the common equity held by non-affiliates of the issuer as of June 30, 2009, was approximately $27,022,390, based upon the last sale price of one share on such date.
 
    As of March 26, 2010, the issuer had outstanding 17,700,249 shares of common stock.
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
    Certain information required by Part III of this document is incorporated by reference to specified portions of the registrant’s definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 


 


 
 
 
 PART I      1
  ITEM 1   BUSINESS  15
   ITEM 1A  RISK FACTORS  25
   ITEM 1B  UNRESOLVED STAFF COMMENTS  25
   ITEM 2  PROPERTIES  25
   ITEM 3  LEGAL PROCEEDINGS  25
   ITEM 4  (Removed and Reserved)  25
 PART II     25 
   ITEM 5  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS  
         AND ISSUER PURCHASES OF EQUITY SECURITIES 25 
   ITEM 6  SELECTED FINANCIAL DATA  27
   ITEM 7  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  28
   ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  43
   ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  43
   ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  44
   ITEM 9A  CONTROLS AND PROCEDURES  44
   ITEM 9B  OTHER INFORMATION  45
 PART III      45
   ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  45
   ITEM 11  EXECUTIVE COMPENSATION  45
   ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  
         AND RELATED STOCKHOLDER MATTERS    45 
   ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE  45
   ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES  46
 PART IV      46
   ITEM 15  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  46
 SIGNATURES      47
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  F-1
 EXHIBIT INDEX  E-1
 


  i
 
 
 

PART I
 
ITEM 1
BUSINESS
 
Overview
 
Wireless Ronin Technologies, Inc. (“RNIN”, “we”, “our” and “us”) is a Minnesota corporation incorporated on March 23, 2000. We provide dynamic digital signage software and service solutions targeting specific retail and service markets. Through a suite of software applications marketed as RoninCast®, we provide an enterprise, web-based or hosted content delivery system that manages, schedules and delivers digital content over wireless or wired networks. Additionally, RoninCast® software’s flexibility allows us to develop custom solutions for specific customer applications.
 
In August 2007, we acquired privately held McGill Digital Solutions, Inc. (now known as Wireless Ronin Technologies (Canada), Inc. (“RNIN Canada”)).  Based in Windsor, Ontario Canada, RNIN Canada provides custom interactive software solutions, content engineering / creative services, and is home to our automotive business development team.  Through e-learning and e-marketing RNIN Canada develops the competencies and knowledge of the people who most influence product sales – sales associates and their customers.
 
Business Strategy
 
Our objective is to be the premier provider of dynamic digital signage systems to customers in our targeted retail and service markets. To achieve this objective, we intend to pursue the following strategies:
 
Focus on Vertical Markets.  Our direct sales force focuses primarily on the following vertical market segments: (1) automotive, (2) food service, which includes quick serve restaurant (“QSR”), fast casual and managed food services, and (3) branded retail.  Within retail, we focus on branded services with bricks and mortar locations, and “consumer goods manufacturers,” such as brands being carried within a retail environment. To attract and influence customers, all three of these key vertical markets continue to seek new mediums that provide greater flexibility and visual impact in displaying content. We focus on markets in which we believe our solution offers the greatest advantages in functionality, implementation and deployment over traditional media advertising.
 
Leverage Strategic Relationships.  We seek to develop and leverage relationships with market participants, such as hardware manufacturers, to integrate complementary technologies with our solutions. We believe that such strategic relationships will enable access to emerging new technologies and standards and increase our market presence.  Our outreach also includes business development strategic alliances with agencies, hardware, fixturing and signage companies, architects and individuals who can generate additional interest and opportunity in our key vertical markets.
 
Market and Brand Our Products and Services Effectively.  Our key marketing objective is to establish RoninCast® dynamic digital signage as an industry standard.  Our marketing initiatives convey the distinguishing and proprietary features of our products, including wireless networking, centralized content management and custom software solutions.
 
Our strategy has included establishing a presence at key industry trade shows, such as NRF (National Retail Federation), NADA (National Auto Dealers Association), and DSE/ITE (Digital Signage Expo/ Interactive Technology Expo).  NRF is the retail industry’s largest trade show.  NADA is a tradeshow for the automobile industry bringing together hundreds of companies displaying the industry’s newest innovations featuring the latest technology, products and services.  DSE/ITE, a trade show dedicated solely to digital signage products, attracts attendees from a variety of markets, including retail, food service, hospitality, education and public spaces.
 
 We also participate in the International Retail Design Conference (IRDC), Fast Casual Executive Summit, and Dine America. IRDC is the premier educational and networking event for the store design and merchandising community, drawing speakers and attendees from throughout the U.S. and abroad. Fast Casual Executive Summit is a gathering that brings together a select group of top executives from the fast casual industry for networking, workgroup sessions and an exchange of ideas and innovations on the industry’s top strategic issues. Dine America is a food service conference for industry executives to exchange ideas and participate in networking events and educational sessions. In addition, we take advantage of speaking opportunities at GlobalShop and publishing of a number of industry white papers to support our position in the digital signage market/industry.
 
 
Outsource Non-Specialized Operating Functions.  We outsource certain non-specialized support functions such as system installation, fixturing, integration and technical field support. In addition, we purchase from manufacturers such items as stands, mounts, custom enclosures, monitors and computer hardware. We believe that our experience in managing complex outsourcing relationships improves the efficiency of our digital signage solutions and allows us to focus on developing software solutions.
 
Create Custom Solutions.  Although RoninCast® is an enterprise solution designed for an array of standard applications, we also develop custom systems that meet the specific business needs of our customers. As digital signage technology continues to evolve, we believe that creating custom solutions for our customers is one of the primary differentiators of our value proposition.
 
Create Content Solutions.  We continue to expand our strategic planning, creative design and content engineering abilities.  Our creative team develops strategies for both internal and external initiatives. We continue to produce award-winning work both for our clients and for our own use. In 2009, a majority of our marketing and sales material was created in-house.
 
Develop New Products.  Developing new products and technologies is critical to our success. Increased acceptance of digital signage will require technological advancements to integrate it with other systems such as inventory control, point-of sale and database applications. In addition, digital media content is becoming richer and we expect customers will continue to demand more advanced requirements for their digital signage networks. We intend to listen to our customers, analyze the competitive landscape and continually improve our products.
 
Industry Background
 
Digital Signage.
 
Digital signage is a visually dynamic, targeted, flexible and affordable way for direct marketing advertisers to reach consumers.  At one point in time, place-based advertisers settled for the “shotgun blast” marketing approach of sending out a general message to a large group of people, in hopes that it would resonate with as many members of that group as possible. But that was a hit-or-miss approach.  Advertisers prefer to send customized messages tailored to the specific needs, wants and desires of individual consumers — in essence, reaching individuals directly as opposed to reaching the masses indirectly.
 
So what is digital signage? The simplest example is a flat-panel screen, often evident in retail stores, food services, casinos, banks/financial institutions, education and hospitality environments that digitally feature a mix of promotions, advertisements and entertainment.
 
Growth of Digital Signage.  We believe there are four primary drivers to the growth of digital signage:
 
  
Changes in the advertising landscape.  Media expenditures since the 1950s have gone primarily to television, followed by newspapers, magazines and commercial radio. But this 50-year trend has now realized its apex, with generational declines in consumption among Gen X and Gen Y. A February 12, 2007 article in Media Week states that where we used to have only web-portals and sites, we now have Voice Over Internet Protocal (“VOIP”) telephony, digital signage and mobile media. The “descending triangle” of traditional media is being displaced by the “ascending triangle” of Internet-enabled media, composed of web-based media, e-mail, mobile media and digital-signage media. The Internet is now blending with out-of-home networked media to form this rapidly integrated media cluster, which is displacing the descending media triangle of television, print, and commercial radio.
 
 
 
 
  
Growing awareness that digital signage is more effective. Research presented at the 2005 Digital Signage Business conference shows that digital signage receives up to 10 times the eye contact of static signage and, depending upon the market, may significantly increase sales for new products that are digitally advertised. A study by Arbitron, Inc. found that 29% of the consumers who have seen video in a store say they bought a product they were not planning on buying after seeing the product featured on the in-store video display. We believe that our dynamic digital signage solutions provide a valuable alternative to advertisers currently using static signage.
 
  
Decreasing hardware costs associated with digital signage.  The high cost of monitors and media players has been an obstacle of digital signage implementation for a number of years. The price of digital display panels and media players has been falling due to increases in component supplies and manufacturing capacity. As a result, we believe that hardware costs are likely to continue to decrease, resulting in continued growth in this market.
 
  
Compliance and effectiveness issues with traditional point-of-purchase signage.  Our review of the current market indicates that most retailers go through a tedious process to produce traditional static point-of-purchase and in-store signage. They create artwork, send such artwork to a printing company, go through a proof and approval process and then ship the artwork to each store. According to an article appearing in The Retail Bulletin (February 19, 2006), it is estimated that less than 50% of all static in-store signage programs are completely implemented once they are delivered to stores. We believe our signage solution can enable prompt and effective implementation of retailer signage programs, thus significantly improving compliance and effectiveness. We believe calorie information compliance rules, as seen in New York and other states, along with pending national legislation requiring restaurants with at least 15 locations in a chain to prominently display calorie information in-store, represent an additional opportunity within the digital signage industry.
 
The RoninCast® Solution
 
RoninCast® solutions offer a digital alternative to static signage that provides our customers with a dynamic visual marketing system designed to enhance the way they advertise, market, deliver and update their messages to targeted audiences. Our technology can be combined with interactive touch screens to create new platforms for assisting with product selection and conveying marketing messages. For example, we designed Chrysler’s iShowroom which launched in the fourth quarter of 2009 in both a desktop version and an interactive touch screen kiosk for auto shoppers at Chrysler dealerships.
 
RoninCast® software enables us to deliver a turn-key solution that includes project planning, innovative design services, network deployment, software training, equipment, hardware configuration, content engineering/development, implementation, maintenance, 24/7 help desk support and a full-service network operations center, or NOC.
 
Our software manages, schedules, and delivers dynamic digital content over wired or wireless networks. Our solution integrates proprietary software components and delivers content over proprietary communication protocols.
 
RoninCast® is an enterprise, web-based or hosted software solution which addresses changes in advertising dynamics and other traditional methods of delivering content. We believe our product provides benefits over traditional static signage and assists our customers in meeting their objectives for a successful marketing campaign.
 
RNIN offers a full service network operations center, manned 24/7, in Minnetonka, Minnesota, supported by a redundant center in Des Moines, Iowa. Our operators send schedules and content, gather data from the field, flag and elevate field issues and handle customer calls. The servers in both locations communicate in real-time with the devices deployed at our customer locations.
 

 
Features and benefits of the RoninCast® system include:
 
·  
Centrally Controlled or Various Levels of Network Access.  RoninCast® software empowers the end-user to distribute content from one central location or pre-assign various levels of password-protected access. As a result, real-time marketing decisions can be managed in-house by a single individual or by pre-designated content; ensuring retailers’ communication with customers is executed system-wide at the right time and the right place. Our content management software recognizes the receipt of new content, displays the content, and reports back to the central location(s) that the media player is working properly.
 
·  
Secure Wireless or Wired Delivery. RoninCast® software can distribute content within an installation that is wired (Ethernet connection) or wireless. RoninCast® software is compatible with current wireless networking technology and does not require additional capacity within an existing network. RoninCast® software uses Wireless Local Area Network (“WLAN”) or wireless data connections to establish connectivity. By installing or using an existing onsite WLAN, the RoninCast® digital signage solution can be incorporated throughout the venue without any environmental network cabling. We also offer our cellular communications solution for off-site signage where WLAN is not in use or practical.
 
·  
Ease and Speed of Message Delivery.  Changing market developments or events can be quickly incorporated into our system. The end-user may create entire content distributions on a daily, weekly or monthly basis. Furthermore, the system allows the end-user to interject quick daily updates to feature new or overstocked items and then automatically return to the previous content schedule.
 
·  
Content Playback and Reporting/Data Collection. RoninCast® software provides users the ability to retrieve play logs from media players to review what has played for invoicing and advertising management.  In addition, through interactive touch screen technology, RoninCast® software can capture user data and information. This information can provide feedback to both the customer and the marketer. The ability to track customer interaction and data mine user profiles, in a non-obtrusive manner, can provide our customers feedback that would otherwise be difficult to gather.
 
·  
Integrated Applications.  RoninCast® software can integrate digital signage with other applications and databases including point-of-sale.  RoninCast® software is able to use a database feed to change the content or marketing message, making it possible for our customers to deliver targeted messages. Data feeds can be available either internally within a business or externally through the Internet. For example, our customers can specify variable criteria or conditions which RoninCast® software will analyze, delivering marketing content relevant to the changing environment.  This data can come from a myriad of sources, such as point-of-sale systems in a retail store or a slot-machine manager in a casino.
 
·  
Scalability/Mobility.  The RoninCast® system provides the ability to easily move signage or “scale-up” to incorporate additional digital signage. Displays can be moved to or from any location under a wireless network. Customers are able to accommodate adds/moves/changes within their environment without rewiring network connections. And when the customer wants to add additional digital signage, only electrical power needs to be supplied at the new location.
 
·  
Compliance/Consistency.  RoninCast® software addresses compliance and consistency issues associated with print media and alternative forms of visual marketing. Compliance measures the frequency of having the marketing message synchronized primarily with product availability and price. Compliance issues cause inconsistencies in pricing, product image and availability, and store policies. RoninCast® software addresses compliance by allowing message updates and flexible control of a single location or multiple locations network-wide. RoninCast® software allows our customers to display messages, pricing, images and other information on websites that are identical to those displayed at retail locations.
 
 

 
·  
Network Control.  Each remote media player is uniquely identified and distinguished from other units as well as between multiple locations. RoninCast® software gives the end-user the ability to view the media player’s status to determine if the player is functioning properly and whether the correct content is playing. A list of all units on the system is displayed, allowing the end-user to view single units or clusters of units. The system also allows the end-user to receive information regarding the health of the network before issues occur. In addition, display monitors can be turned on or off remotely.
 
Industry Recognition
 
In February 2009, we were awarded two Apex Awards for various projects during the Digital Signage Expo (DSE) & Interactive Technology Expo (ITE):  Interactive Innovation for Sprint “Sprint Experience” at the Lucas Oil Stadium and Technology Innovation in Finance/Banking for Thomson Reuters “InfoPoint”.  DSE/ITE is a leading industry show dedicated to digital signage and interactive technology.
 
In 2009, the Windsor-Essex (Canada) Regional Chamber of Commerce presented Wireless Ronin with the 2009 Business Excellence Product Innovation Award for work done in the automotive market with the launch and rollout of RoninCast® for Automotive. This Annual Business Excellence Award program recognizes the achievements of businesses and people in the Windsor and Essex County and the contributions they make to economic growth.
 
Our Markets
 
We generate revenue through system sales, license fees and separate service fees for consulting, hosting, training, content development and implementation services, and for ongoing customer support and maintenance. We currently market and sell our software and service solutions through our direct sales force. Select strategic partnerships and business alliances also drive business to the company through a highly targeted business development initiative.
 
We market to companies that seek interactive touch screen solutions, service menu boards, and non-touch digital signage. We target companies that deploy point-of-purchase advertising or visual display systems and whose business model incorporates marketing, advertising, infotainment or delivery of messages. Typical applications are retail and service business locations that depend on traditional static point-of-purchase advertising. We believe that any retail businesses promoting a brand or advertisers seeking to reach consumers at public venues are also potential customers. We believe that our primary vertical market segments for digital signage include:
 
Automotive. RoninCast® for Automotive delivers relevant content to all areas of a dealership and to special events like auto shows. It includes pre-built automotive design templates and content along with our Automotive Content Management System and Dealer Ad Planner tools. Interactive touch screens deliver detailed product information that informs and educates customers and employees alike.
 
Food Service. QSR (Quick Serve Restaurant), Fast Casual, and Managed Food Services. The use of menu boards and promotional boards both in-store and in the drive-through allow restaurants to address the unique challenges of the industry, allowing for immediate compliance, the ability to quickly update pricing, and highlight new items.
 
Branded Retail.  Digital signage allows retailers to set promotions to fit various demographics of customers and their respective shopping patterns and cycles, and to offer services that more effectively compete with online retailers.  Digital signage also effectively addresses retailers’ challenge of point-of-purchase compliance.

 
Select Customers
 
Historically, our business has been dependent upon a few customers. Our goal is to broaden and diversify our customer base. Our client base has grown organically and through our acquisition of RNIN Canada from 99 clients at the end of 2007 to over 200 clients at the end of 2009.  Detail on key customers is as follows:
·  
ARAMARK –We have worked with ARAMARK since April of 2008.  ARAMARK provides managed food service for thousands of locations in 10 verticals worldwide.  We have been engaged by the Higher Education division to support menu boards and touch screens on university campuses, which included the  launch of its Burger Studio brand in 2009.  We are currently expanding our services into elementary and secondary schools.  In 2009, ARAMARK continued its expansion of its Digital Media Network using RoninCast® software to its business units: Higher Education, Health Care, Business Dining Services, K-12 Education and Sports and Entertainment.  ARAMARK has promoted the network internally at  national meetings for various business units, as well as through a direct campaign to local managers.  We currently provide all aspects of the related digital signage needs, including hosting and content, though as ARAMARK expands it may take a larger role in content creation as well as potentially hosting its own solution.   Sales to ARAMARK represented 21.7% and 3.2% of our total sales in 2009 and 2008, respectively.
 
·  
Thomson Reuters –In June 2007, we entered into a master services agreement with Reuters Limited to manage and maintain Reuter’s InfoPoint network at digital signage locations in and outside the United States. We supply a complete solution to Thomson Reuters including hardware, software and hosting.  The InfoPoint network is a lifestyle, news, information and pictures-based digital signage display network designed for the out-of-home market. The network is designed for public spaces, lobbies, waiting areas and walkways.  Reuters is the world’s largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news and small business news via the internet, video, mobile and interactive television platforms.  We continued to expand the number of InfoPoint digital signage locations in 2009.  As of December 31, 2009, we provided hosting and support services to 286 locations for this customer.  We provide system support to Reuters’ network on a 24-hour per day, 7-day per week and 365 days per year basis.  Sales to Thomson Reuters represented 15.8% and 2.5% of total sales in 2009 and 2008, respectively.
 
·  
Chrysler (BBDO Detroit/Windsor) — RNIN Canada has been working with Chrysler over the past nine years, which includes providing digital content creation services, e-learning tools and a data-driven touch screen kiosk program.  The initial touch screen kiosk program used throughout Chrysler’s dealer network was called the Chrysler Vehicle Information Centre.    We have been working with Chrysler over the past two years developing a next generation system called iShowroom.  We currently have an agreement with Chrysler to provide ongoing services as part of this program. Chrysler launched the web- based version of this application in 2009 to all of its U.S. dealerships.  All of these dealerships now have access to this application on their desktop and is currently being used as a tool to gain product information and also as an aid in the selling process.  We also provide an interactive kiosk touch screen version of iShowroom and jointly market this with Chrysler to its entire U.S.-based dealer network.  Sales to Chrysler, through BBDO Detroit/Windsor, represented 14.3% and 31.8% of total sales in 2009 and 2008, respectively.
 
·  
YUM/KFC – In December 2007, Wireless Ronin entered into an information technology products and services master terms and conditions agreement with YUM Restaurant Services Group, Inc. (“YUM”).  That agreement established standard terms and conditions pursuant to which we may provide goods and services to YUM’s commonly owned affiliates such as Taco Bell Corp., Pizza Hut, Inc., KFC U.S. Properties, Inc., Long John Silver’s, Inc., and A&W Restaurants, Inc.  We continued to expand our relationship with KFC and YUM in 2009, which now includes over 180 locations across five countries. Las Vegas, Austin, Oklahoma City and Louisville are now 100% digital.  We are also deploying a custom content management web-portal for KFC corporate and its franchisee operators, which allows for the online management of content, day-parting and monthly scheduling of the digital menu boards.   We expect to continue to provide overall monitoring and maintenance of the network through our network operation center, or NOC.  Sales to KFC represented 10.1% and 17.9% in 2009 and 2008, respectively.
 
 
NEC Reseller Agreement
 
    In 2009, we entered into an agreement with NEC Display Solutions of America, or NEC, pursuant to which NEC became an authorized reseller of RoninCast® software.  NEC is currently marketing the fully-customized, hosted content management solution to its end-users.  We believe this agreement allows NEC to address specific needs of current and future digital signage customers.  RoninCast® enables NEC to offer a solution for large digital signage networks that require a robust customized solution.  We believe this agreement will also expand our sales reach by extending RoninCast® software into the hands of NEC’s sales personnel across the U.S. and Canada.
 
Product Description
 
RoninCast® is an enterprise dynamic digital signage network solution that combines scalable, secure,  web-based or hosted proprietary software with off the shelf or customer owned hardware. This integrated solution creates a network capable of controlling management, scheduling and delivering content from a single location to an entire network.
 
 

 
Master Controller (MC) — The MC is divided into two discrete operational components: the Master Controller Server (MCS) and the Master Controller Client (MCC). The MCS provides centralized control over the entire signage network and is controlled by operators through the MCC graphical user interface. Content, schedules and commands are submitted by users through the MCC to be distributed by the MCS to the End-Point Controllers. Additionally, through the MCS, network and content reports, and field data are viewed by operators utilizing the MCC.
 
End-Point Controller (EPC) — The EPC receives content, schedules and commands from the centralized MCS. It then passes along the information to the End-Point Viewers in its local environment. The EPC then sends content, executes schedules and forwards commands that have been delivered. Additionally, the EPC monitors the health of the local network and sends status reports to the MCS.
 
End-Point Viewer (EPV) — The EPV software displays the content that has been distributed to it from the EPC or the Site Controller. It keeps track of the name of the content that is currently playing, and when and how many times it has played. This information is delivered back to the MCS through the EPC.
 
Site Controller (SC) — The SC provides localized control and operation of an installation. It is able to deliver, broadcast, or distribute schedules and content. The level of control over these operations can be set at specific levels to allow local management access to some or all aspects of the network. The SC also allows information to be reviewed regarding the status of their local RoninCast® network. It is also used as an installation and diagnostic tool.
 
Network Builder (NB) — The NB allows operators to set up virtual networks of signage that create groups for specific content distribution. EPVs can be grouped by location, type, audience, or whatever method the user chooses.
 
Schedule Builder (SB) — The SB provides users the ability to create schedules for extended content distribution. Schedules can be created a day, a week, a month or a year at a time. These schedules are executed by the EPCs at the local level.
 
Zone Builder (ZB) — The ZB allows screen space to be divided into discreet sections (zones) that can each play separate content. This allows reuse of media created from other sources, regardless of the pixel-size of the destination screen. Additionally, each zone can be individually scheduled and managed.
 
RoninCast® Wall (RCW) — The RCW provides the ability to synch multiple screens together to create complex effects and compositions such as an image moving from one screen to the next screen, or all screens playing new content at one time.
 
Database Client (DBC) — The DBC allows for automation of control of the RoninCast® network. Information can be retrieved from a database and sent to the EPVs automatically. This software is best suited for implementation where information changes on a regular basis, such as meeting room calendars or arrival and departure times, or data feeds from the Internet (for example, stock prices or sports scores).
 
Event Log Viewer (EVL) — The EVL allows the user to easily analyze logs collected from the field in an organized manner. Filtering and sorting of data in any aspect further simplifies the analysis.
 
Software Development Kit (SDK) — The SDK is provided so that customers can create their own custom applications that can interface with the RoninCast® network. This provides additional flexibility for customers who wish to create their own look-and-feel.
 
Key Components
 
Key components of our solution include:
 
User-Friendly Network Control
 
When managing the RoninCast® network, the ability to easily and intuitively control the network is critical to the success of the system and the success of the customer. Customer input has been, and continues to be, invaluable in the design of the RoninCast® Graphical User Interface. Everything from simple design decisions, such as menu layout, to advanced network communication, such as seeing the content play on a remote screen, is designed to be user-friendly and intuitive.
 
Diverse Media and Authoring Choices
 
With the myriad of media design tools available today, it is vital that RoninCast® software stay current with the tools and technologies available. RoninCast® software started with Macromedia Flash, and while Flash remains a large percentage of content created and deployed, we have continued to innovate and expand the content options available. Today we offer video (MPEG1, MPEG2, MPEG4, WMV, AVI, QT, MOV), Macromedia Flash (SWF), still images (JPEG, BMP), and audio (MP3, WAV). Additionally, raw data feeds (from internal or Internet sources) can be processed and displayed as tickers that can be integrated into any screen layout.  As media technologies continue to emerge and advance, we plan to expand the media choices for RoninCast® solutions.
 
Intelligent Content Distribution
 
The size and complexity of the content being sent to digital displays are growing. In order for RoninCast® software to maintain network friendliness across wired and wireless connections, it is important that as few bytes as possible are sent. There are several ways that we enable this.
 
The system utilizes a locally installed librarian that takes advantage of unused space on the hard-drive to track and manage content. Only files that are needed at the EPVs are transferred, saving on network bandwidth.
 
RoninCast® software supports content transfer technologies other than one-to-one connections. One such technology is multicast satellite distribution. This technology is widely used in corporations such as big-box retailers that distribute large quantities of data to many locations.
 
Often it is not the content itself that needs to be changed, but the information within the content that needs to be changed. If information updates are needed, instead of creating and sending a new content file, RoninCast® software can facilitate the information swap. Through Macromedia Flash and the RoninCast® Database Client, changing content information (instead of the content itself) can be facilitated through mechanisms such as Active Server Pages (ASP, PHP). This reduces updates from mega-bytes to the few bytes required to display a new piece of data (such as a price).
 
Distributed Management
 
In order for RoninCast® solutions to be scalable to large organizations, it is necessary that each individual installation not burden the MC with everyday tasks that are required to manage a complex network. To this end, the MC offloads much of its work and monitoring to the EPCs. On the local network, the EPCs execute schedules, monitor EPVs, distribute content, and collect data. The only task that is required of the MC is to monitor and communicate with the EPCs. In this way, expansion of the RoninCast® network by adding an installation does not burden the MC by the number of screens added, but only by the single installation.
 
Enterprise-Level Compatibility
 
RoninCast® software is designed to easily integrate into large enterprises and become part of the suite of tools that are used every day. The RoninCast® Server applications (MCS and EPC) run under Windows (2K, XP and 2K+ Server), and Linux server technology. In order to accommodate our customers’ network administrators, our software supports the ability to use ASP and PHP to create controlled, closed-loop interfaces for the RoninCast® system.
 
Flexible Network Design
 
One of the strengths of the RoninCast® network is the ease and flexibility of implementation and expansion. RoninCast® software is designed to intelligently and successfully manage myriad connection options simultaneously, both internally to an installation and externally to the Internet.
 
RoninCast® solutions can be networked using Wired LAN and/or Wireless LAN technology. With Wireless LAN, time and costs associated with installing or extending a hardwired network are eliminated. Wireless LAN offers customers freedom of installations and reconfigurations without the high costs of cabling. Additionally, a new installation can be connected to the Internet through dial-up/DSL telephone modems, wireless data communications or high-throughput enterprise data-pipes.
 
 
In order to communicate with the MCS, a new installation can be connected to the Internet through dial-up/DSL telephone modems, digital mobile communication (such as CDMA or GPRS), or high-throughput enterprise data-pipes.
 
Security
 
Essential to the design of RoninCast® software is the security of the network and hence the security of our customers. In order to provide the most secure installation possible, we address security at every level of the system: RoninCast® communication, operating system hardening, network security and user interaction.
 
RoninCast® software utilizes an unpublished proprietary communication protocol to communicate with members of the system. All information that is sent to or from a network member is encrypted with an industry standard 256-bit encryption scheme that is rated for government communication. This includes content for display as well as commands to the system, such as those for maintenance and data retrieval. Additionally, all commands are verified by challenge-response where the receiver of communication challenges the sender to prove that in fact it was sent from that sender, and not a potential intruder.
 
In order for computers to be approved for use on the RoninCast® network, their operating systems (whether Windows or Linux) go through a rigorous hardening process. This hardening removes or disables extraneous programs that are not required for the core operation of RoninCast® applications. The result is a significantly more stable and secure base for the system as a whole.
 
Wireless and wired LAN each poses different levels of security exposure. Wireless LAN has the most exposure to potential intruders. However, both can be accessed. In order to create a secure network, we utilize high-level industry-standard wireless LAN equipment and configure it with the highest level of security. When necessary, we work with our customers, analyze their network security and recommend back-end computer security hardware and software that will help make both their network and the RoninCast® network as secure as possible.
 
RoninCast® also uses a username/password mechanism with four levels of control so that access and functionality can be granted to a variety of users without having to give complete control to everyone. The four levels are separated into root (the highest level of control with complete access to the system), administrators (access that allows management of RoninCast®’s hardware and software), operators (access that allows the management of the media playing), and auditors (access that is simply a “looking glass” that allows the viewing of device status, media playing, etc.). Additionally, in order to facilitate efficient management of access to the system, RoninCast® resolves usernames and passwords with the same servers that already manage a customer’s infrastructure.
 
Network Operations Center
 
We offer a full service network operations center (“NOC”), manned 24/7, in Minnetonka, Minnesota, and supported by a redundant center in Des Moines, Iowa. The computers in both locations communicate in real-time with the devices deployed at our customer locations.
 
Our NOC operators send schedules and content, gather data from the field, flag and elevate field issues and handle customer calls. RoninCast®’s dynamic nature allows our customers to purchase subscriptions at the level of service they desire. Some customers may want us to manage all aspects of their RoninCast® network, whereas other customers may want us to monitor for field issues, but manage the schedules and content themselves.
 
In addition to normal RoninCast® management, customers can subscribe to dynamic data from the Internet, such as weather or stock quotes. This data is received by our servers and distributed to the desired End-Point Viewers in the field. Multiple language feeds can be supported with only the needed information arriving at each location. Due to the scalability of RoninCast®, each Master Controller Server in the NOC can manage one or many customers.
 
Our Suppliers
 
Our principal suppliers include the following:
 
·  
NEC Display Solutions and Synexx for monitors;
 
·  
ASI and NowMicro for computers;
 
·  
Chief Manufacturing, Inc. and Peerless for fixtures; and
 
·  
MTG, TekServe and Field Solutions for installation services.
 
We have no long-term agreements with any of our suppliers.
 
Ongoing Development
 
Ongoing product development is essential to our ability to stay competitive in the marketplace as a solution provider.  We believe that the functionality and capabilities of our product offerings are competitive advantages and that we must continue to invest in them to maintain our competitive position.  The digital signage market is subject to rapid technological change including new communication technologies, new computer hardware and display technologies, as well as the expansion of media display options.  Client requirements are also evolving rapidly.  To remain successful, we must continually adapt to these and other changes.  We incurred research and development expenses of $2.2 million in 2009, $2.5 million in 2008, and $1.2 million in 2007.
 
Services
 
Our services are integral to our ability to provide customers with successful digital signage solutions.  We offer a wide range of services from consulting, project planning, design, content development, training, hosting and implementation services, to ongoing customer support and maintenance. Generally, we charge our customers for services on a fee-for-service basis.
 
We also offer existing and prospective clients robust and turn-key content creation capabilities.  Our graphic shops in Windsor, Ontario, Canada and Minnetonka, Minnesota are staffed with competent and experienced artists who excel at converting existing assets into appealing digital assets.
 
Consulting: We work with clients to determine the ultimate hardware and software solution tailored to the specific requirements for their environment.
 
Creative: With design experience and an outstanding record of customer satisfaction, our creative team helps make our clients’ marketing and advertising initiatives a reality.
 
Content Engineering: Our content engineering group is tasked with the architecture, production and development of advanced interactive content as well as all e-learning content creation producing relevant, valuable, and measureable results that engage and motivate customers and consumers alike.
 
Content Deployment: Our content deployment group offers robust content creation and deployment capabilities for non-interactive applications which includes planning, re-purposing of existing content and the development of visual communications.
 
Project Management: Our project management team has experience with large-scale implementations and installations — keeping the goals of timeliness, effectiveness and customer satisfaction in mind.
 
Fixturing: Whether our clients have their own partners or need our assistance, we work with clients to incorporate the RoninCast® technology into their environments.
 
Installation: We have the experience to roll out large scale projects and single location installations without unexpected delays or expenses.
 
Training: We provide training with every purchase of RoninCast® software.
 
Hosting: For clients requiring assistance with operating their networks, we offer the service of a Network Operations Center, or NOC, for any network hosting needs.
 
Maintenance and Support: Our support staff is available 24/7 for assistance with any issue.  Standard maintenance, including software upgrades, is included under the annual maintenance agreement.
 
Intellectual Property
 
     As of March 26, 2010, we had received one design patent, filed three U.S. patent applications and had one Canadian patent application pending relating to various aspects of our RoninCast® delivery system. Highly technical patents can take up to six years to issue and we cannot assure you that any patents will be issued, or if issued, that the same will provide significant protection to us.
 
     We currently have U.S. federal trademark registrations for WIRELESS RONIN® and RONIN CAST®, and for RONINCAST and Design®.  RONIN CAST® and RONIN CAST and Design® have been registered in the European Union.  RONIN CAST and Design® is registered in Canada.  We have several trademarks pending action by various patent and trademark offices as described below:
 
     RONINCAST® and Design (Color Logo) is pending registration in Canada and is registered in the European Union and the U.S.
 
     The “WR” (Circle Design) is pending registration in Canada and is registered in the U.S.
 
     COMMUNICATING AT LIFE SPEED™ is registered in Canada and the U.S., and COMMUNICATING AT LIFESPEED™ is registered in the European Union.
 
     Federal trademark registrations continue indefinitely so long as the trademarks are in use and periodic renewals and other required filings are made.  We review our trademarks and registration requirements with the help of trademark legal counsel and may, from time to time, abandon registered trademarks or file new applications for trademarks if then-current registrations no longer accurately reflect our use of those trademarks.
 
Competition
 
We compete with EnQii and Stratacache as digital signage providers.  Within our primary verticals of automotive, food service and retail, our competitors include Broadsign, Scala, Omnivex, Hughes, Texas Digital, c-nario, Harris-Infocaster, Planar/Coolsign and Cisco Systems.  Touch-screen competitors include Netkey and Nanonation. Some or all of our competitors may have significantly greater financial, technical and marketing resources than we do and may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements.  We believe that our direct sales force, our full service network operations center, our complete digital signage solutions and our brand awareness are the primary factors affecting our competitive position. We also compete with standard advertising media, including print, television and billboards.
 
 
Territories
 
Our company sells products and services primarily throughout North America. In the year ended December 31, 2009, we derived 87% of net sales in the U.S., 3% of net sales in Canada and 10% in other countries, based on the location of the end customer.  For more information, see Note 10 to our Consolidated Financial Statements (“Segment Information and Major Customers”).
 
Regulation
 
We are subject to regulation by various federal and state governmental agencies. Such regulation includes radio frequency emission regulatory activities of the U.S. Federal Communications Commission, the consumer protection laws of the U.S. Federal Trade Commission, product safety regulatory activities of the U.S. Consumer Product Safety Commission, and environmental regulation in areas in which we conduct business. Some of the hardware components which we supply to customers may contain hazardous or regulated substances, such as lead. A number of U.S. states have adopted or are considering “takeback” bills which address the disposal of electronic waste, including CRT style and flat panel monitors and computers. Electronic waste legislation is developing. Some of the bills passed or under consideration may impose on us, or on our customers or suppliers, requirements for disposal of systems we sell and the payment of additional fees to pay costs of disposal and recycling. As of the date of this report, we have not determined that such legislation or proposed legislation will have a material adverse impact on our business.
 
Employees
 
We often refer to our employees as associates.  As of March 26, 2010, we had a full-time workforce of 87, of which 75 were employees (associates) and 12  full-time contractors.  Fifty members of our workforce operate out of our headquarters located in Minnetonka, Minnesota.  The others operate out of our office located in Windsor, Ontario, Canada.  Our workforce is engaged in programming, networking, designing, training, sales/marketing and administration.
 
Executive Officers of the Registrant
 
The following table provides information with respect to our executive officers as of March 26, 2010.  Each executive officer has been appointed to serve until his or her successor is duly appointed by the Board of Directors or his or her earlier removal or resignation from office.  There are no familial relationships between any director or executive officer.
 
Name
 
Age
 
Position with Company
James C. Granger
 
63
 
President, Chief Executive Officer and Director
Darin P. McAreavey
 
41
 
Vice President and Chief Financial Officer
Scott W. Koller
 
48
 
Executive Vice President and Chief Operating Officer

 
James C. Granger has served as our President, Chief Executive Officer and Director since December 2008.  Prior to joining Wireless Ronin, Mr. Granger served as President of Toptech Systems, Inc., a provider of software, hardware and data services.  Prior to Toptech, Mr. Granger was President and Chief Executive Officer and a Director of Norstan Inc., a communications solutions and services company, from November 2000 to February 2004.  Mr. Granger served as Chairman, President and Chief Executive Officer of Digital Biometrics, Inc., now part of L-1 Identity Solutions Inc., a provider of identification information systems that employ biometric technology, from January 1997 to November 2000.  He was President of Access Platform Systems Division at ADC Telecommunications, Inc., a provider of broadband communications network infrastructure products and related services, from 1995 to 1997.  Mr. Granger served as Vice President of Consumer Markets Operations, and before that, as Vice President of Marketing, at Sprint/United Telephone from 1989 to 1995.
 
Darin P. McAreavey has served as our Vice President and Chief Financial Officer since March 2009.  Mr. McAreavey worked for Xiotech Corporation, a computer storage company, from September 2007 to March 2009 as its Chief Financial Officer.   From February 2007 to September 2007, Mr. McAreavey worked for Global Capacity Group, a telecom logistics provider, as its Chief Financial Officer.  Mr. McAreavey was the Chief Financial Officer, Executive Vice President and Treasurer for Stellent, Inc., a content management software company, from May 2006 to February 2007 and that company’s Corporate Controller from September 2004 to May 2006.  Mr. McAreavey worked at Computer Network Technology, a provider of storage networking solutions from August 1995 to September 2004 where he held several management-level finance positions including Director of Finance.  From November 1993 to August 1995, Mr. McAreavey was a Supervising Senior for KPMG LLP.  Mr. McAreavey began his professional career as a Staff Accountant at Eide Helmeke & Co., where he served from July 1991 to November 1993.
 
Scott W. Koller has served as Executive Vice President and Chief Operating Officer since March 2009. Mr. Koller joined Wireless Ronin in November 2004.  He served as our Senior Vice President of Sales and Marketing from November 2004 through January 2007, our Executive Vice President of Sales and Marketing from February 2007 through October 2008, and our Executive Vice President of Sales and Project Management from October 2008 through March 2009.   From December 2003 to November 2004, Mr. Koller served as Vice President of Sales and Marketing for Rollouts Inc., a provider of field services for large-scale implementations.  From August 1998 to November 2003, Mr. Koller served in various roles with Walchem Corporation,  a manufacturer of metering pumps and analytical controllers, including the last three years as Vice President of Sales and Marketing. Mr. Koller served in the U.S. Naval Nuclear Power Program from 1985 to 1992.




ITEM 1A
RISK FACTORS
 
The following are certain risk factors that could affect our business, financial condition, operating results and cash flows.  These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these risk factors could cause our actual results to differ materially from those expressed in any forward-looking statement.  The risks we have highlighted below are not the only ones we face.  If any of these events actually occur, our business, financial condition, operating results or cash flow could be negatively affected.  We caution you to keep in mind these risk factors and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of this report.
 
Risks Related to Our Business
 
Our operations and business are subject to the risks of an early stage company with limited revenue and a history of operating losses. We have incurred losses since inception, and we have had only nominal revenue. We may not ever become or remain profitable.
 
 Since inception, we have had limited revenue from the sale of our products and services, and we have incurred net losses. We incurred net losses of $10.2 million and $20.7 million for the years ended December 31, 2009 and 2008, respectively. As of December 31, 2009, we had an accumulated deficit of $74.4 million.
 
We have not been profitable in any year of our operating history and anticipate incurring additional losses into the foreseeable future. We do not know whether or when we will become profitable. Even if we are able to achieve profitability in future periods, we may not be able to sustain or increase our profitability in successive periods. We may require additional financing in the future to support our operations. For further information, please review the risk factor “Adequate funds for our operations may not be available, requiring us to curtail our activities significantly”.
 
We have formulated our business plans and strategies based on certain assumptions regarding the acceptance of our business model and the marketing of our products and services. However, our assessments regarding market size, market share, market acceptance of our products and services and a variety of other factors may prove incorrect. Our future success will depend upon many factors, including factors which may be beyond our control or which cannot be predicted at this time.
 
Our success depends on our RoninCast® system achieving and maintaining widespread acceptance in our targeted markets. If our products contain errors or defects, our business reputation may be harmed.
 
Our success will depend to a large extent on broad market acceptance of RoninCast® software and our other products and services among our prospective customers. Our prospective customers may still not use our solutions for a number of other reasons, including preference for static signage, unfamiliarity with our technology, preference for competing technologies or perceived lack of reliability. We believe that the acceptance of RoninCast® software and our other products and services by our prospective customers will depend on the following factors:
 
·
our ability to demonstrate RoninCast® software’s economic and other benefits;
 
·
our customers becoming comfortable with using RoninCast® software; and
 
·
the reliability of the RoninCast® software and the hardware comprising our digital signage systems.
 
Our software is complex and must meet stringent user requirements. Our products could contain errors or defects, especially when first introduced or when new models or versions are released, which could cause our customers to reject our products, result in increased service costs and warranty expenses and harm our reputation. We must develop our products quickly to keep pace with the rapidly changing digital signage and communications market. In the future, we may experience delays in releasing new products as problems are corrected. In addition, some undetected errors or defects may only become apparent as new functions are added to our products. Delays, costs and damage to our reputation due to product defects could harm our business.
  
 
World-wide efforts to cut capital spending, general economic uncertainty, and a weakening global economy could have a material adverse effect on us.
 
Disruptions in the economy and constraints in the credit markets have caused companies to reduce or delay capital investment.  Some of our prospective customers may cancel or delay spending on the development or roll-out of capital and technology projects with us due to the economic downturn.  Furthermore, the downturn has adversely affected certain industries in particular, including the automotive and restaurant industries, in which we have major customers.  We could also experience lower than anticipated order levels from current customers, cancellations of existing but unfulfilled orders, and extended payment or delivery terms.  The economic crisis could also materially impact us through insolvency of our suppliers or current customers.  While we have down-sized our operations to reflect the decrease in demand, we may not be successful in mirroring current demand.
 
We may experience fluctuations in our quarterly operating results.
 
We may experience variability in our total sales on a quarterly basis as a result of many factors, including the condition of the electronic communication and digital signage industry in general, shifts in demand for software and hardware products, technological changes and industry announcements of new products and upgrades, absence of long-term commitments from customers, timing and variable lead-times of customer orders, delays in or cancellations of customer orders, variations in component costs and/or adverse changes in the supply of components, variations in operating expenses, changes in our pricing policies or those of our competitors, the ability of our customers to pay for products and services, effectiveness in managing our operations and changes in economic conditions in general. We may not consider it prudent to adjust our spending levels on the same timeframe; therefore, if total sales decline for a given quarter, our operating results may be materially adversely affected. As a result of the potential fluctuations in our quarterly operating results, we believe that period-to-period comparisons of our financial results should not be relied upon as an indication of future performance. Further, it is possible that in future quarters our operating results will be below the expectations of public market analysts and investors. In such event, the price of our common stock would likely be materially adversely affected.
 
Due to our dependence on a limited number of customers, we are subject to a concentration of credit risk.
 
In the case of insolvency by one of our significant customers, an account receivable with respect to that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial position.  As of December 31, 2009, Chrysler (BBDO Detroit/Windsor) accounted for 42% of our total receivables.  In April 2009, Chrysler LLC and twenty-four of its affiliated subsidiaries filed a consolidated petition for Chapter 11 Bankruptcy Protection with the U.S. Federal Bankruptcy court in New York City.  While Chrysler LLC has emerged from bankruptcy and we continue to receive orders, our revenues were significantly impacted in 2009 compared to the prior year (see Note 10 to our Consolidated Financial Statements regarding Segment Information and Major Customers.)  In addition, Chrysler’s advertising agency, BBDO Detroit, closed its office at the end of January 2010.  Chrysler has subsequently moved its advertising relationship to another firm, which is not currently a customer of ours.  Of the $0.7 million total revenue recognized in 2009 from both Chrysler and BBDO Detroit, approximately 59% was transacted through BBDO Detroit.  We  cannot presently determine what impact Chrysler’s decision to changes its advertising agency may have on any of the existing projects we are currently working on or future opportunities we may have with Chrysler and its affiliates.

In the case of insolvency by one of our significant customers, an account receivable with respect to that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial position.  In one case in the past, we converted a customer’s account receivable into a secured note receivable then into the underlying collateral, which we ultimately wrote off.  In the future, if we convert other accounts receivable into notes receivable or obtain the collateral underlying notes receivable, we may not be able to fully recover the amount due, which could adversely affect our financial position. Furthermore, the value of the collateral which serves to secure any such obligation is likely to deteriorate over time due to obsolescence caused by new product introductions and due to wear and tear suffered by those portions of the collateral installed and in use. There can be no assurance that we will not suffer credit losses in the future.
  
The integration and operation of an acquired business may disrupt our business and create additional expenses and we may not achieve the anticipated benefits of the acquisition. In the event we elect to expand our business through acquisitions, we cannot assure that such future acquisitions, if pursued and consummated, will be advantageous or profitable.
 
Integration of an acquisition involves numerous risks, including difficulties in converting information technology systems and assimilating the operations and products or services of an acquired business, the diversion of management’s attention from other business concerns, risks of entering markets in which we have limited or no direct prior experience, assumption of unknown liabilities, increased accounting and financial reporting risk, the potential loss of key associates and/or customers, difficulties in completing strategic initiatives already underway in the acquired or acquiring companies, unfamiliarity with partners of the acquired company, and difficulties in attracting additional key employees necessary to manage acquired operations, each of which could have a material adverse effect on our business, results of operations and financial condition.
 
In addition, we may determine to grow through future acquisitions of technologies, products or businesses. We may complete future acquisitions using cash, or through issuances of equity securities which could be dilutive, or through the incurrence of debt which could contain restrictive covenants. Finally, acquisitions may result in significant amortization expenses related to intangible assets. Such methods of financing could adversely affect our earnings. We cannot assure you that we will be successful in integrating any business acquired in the future. In addition, we cannot assure you that we will pursue or consummate future acquisitions or that any acquisitions, if consummated, will be advantageous or profitable for our company.
 
Most of our contracts are terminable by our customers with limited notice and without penalty payments, and early terminations could have a material effect on our business, operating results and financial condition.
 
Most of our contracts are terminable by our customers following limited notice and without early termination payments or liquidated damages due from them. In addition, each stage of a project often represents a separate contractual commitment, at the end of which the customers may elect to delay or not to proceed to the next stage of the project. We cannot assure you that one or more of our customers will not terminate a material contract or materially reduce the scope of a large project. The delay, cancellation or significant reduction in the scope of a large project or a number of projects could have a material adverse effect on our business, operating results and financial condition.
 
Our prospective customers often take a long time to evaluate our products, with this lengthy and variable sales cycle making it difficult to predict our operating results.
 
It is difficult for us to forecast the timing and recognition of revenue from sales of our products because our prospective customers often take significant time to evaluate our products before purchasing them. The period between initial customer contact and a purchase by a customer may be more than one year. During the evaluation period, prospective customers may decide not to purchase or may scale down proposed orders of our products for various reasons, including:
 
·
reduced need to upgrade existing visual marketing systems;
 
·
introduction of products by our competitors;
 
·
lower prices offered by our competitors; and
 
·
changes in budgets and purchasing priorities.
 
Our prospective customers routinely require education regarding the use and benefit of our products. This may also lead to delays in receiving customers’ orders.
  
Adequate funds for our operations may not be available, requiring us to curtail our activities significantly.
 
Based on our current and anticipated expense levels and our existing capital resources, we anticipate that our cash will be adequate to fund our operations through 2010. Our future capital requirements, however, will depend on many factors, including our ability to successfully market and sell our products, develop new products and establish and leverage our strategic partnerships and business alliances. In order to meet our needs should we not become cash flow positive or should we be unable to sustain positive cash flow, we may be required to raise additional funding through public or private financings, including equity financings. Any additional equity financings may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants.   Furthermore, we agreed with the investors in our November 2009 public offering of common stock that, without obtaining the prior consent of investors purchasing a majority of the shares in such offering, and subject to certain exceptions, we would not issue shares of our common stock, or securities exercisable, exchangeable or convertible into our common stock, at a price per share less than $2.90 for a period of 180 days following the closing of such offering.  Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us, especially in light of recent turmoil in the credit markets. If adequate funds are not available, our plans to expand our business may be adversely affected and we could be required to curtail our activities significantly.  
 
Difficulty in developing and maintaining relationships with third party manufacturers, suppliers and service providers could adversely affect our ability to deliver our products and meet our customers’ demands.
 
We rely on third parties to manufacture and supply parts and components for digital signage systems we provide, and to provide order fulfillment, installation, repair services and technical and customer support. Our strategy to rely on third party manufacturers, suppliers and service providers involves a number of significant risks, including the loss of control over the manufacturing process, the potential absence of adequate capacity, the unavailability of certain parts and components used in our products and reduced control over delivery schedules, quality and costs. For example, we do not generally maintain a significant inventory of parts or components, but rely on suppliers to deliver necessary parts and components to third party manufacturers, in a timely manner, based on our forecasts. If delivery of our products and services to our customers is interrupted, or if our products experience quality problems, our ability to meet customer demands would be harmed, causing a loss of revenue and harm to our reputation. Increased costs, transition difficulties and lead times involved in developing additional or new third party relationships could adversely affect our ability to deliver our products and meet our customers’ demands and harm our business.
 
Reductions in hardware costs will likely decrease hardware pricing to our customers and would reduce our per unit revenue.
 
Our pricing includes a standard percentage markup over our cost of digital signage systems, such as computers and display monitors. As such, any decrease in our costs to acquire such components from third parties will likely be reflected as a decrease in our hardware pricing to our customers. Therefore, reductions in such hardware costs could potentially reduce our revenues.
 
Because our business model relies upon strategic partners and business alliances, we expect to face risks not faced by companies with only internal sales forces.
 
We currently sell most of our digital signage systems and software licenses through an internal sales force. We anticipate that strategic partners and business alliances will become a larger part of our sales strategy. We may not, however, be successful in forming relationships with qualified or developing business alliances. If we fail to attract qualified partners or develop business alliances, we may not be able to expand our sales network, which may have an adverse effect on our ability to generate revenue. Our anticipated reliance on strategic partners and business alliances involves several risks, including the following:
 
   
·
we may not be able to adequately train our strategic partners and those with which we have business alliances to sell and service our software and services;
 
·
they may emphasize competitors’ products or decline to promote and sell our software and services;
 
·
channel conflict may arise between other third parties and/or our internal sales staff; and
 
·
software to manage content may be given away.
 
Hardware companies may include digital signage software with functionality similar to RoninCast® as an integrated hardware and software solution, which could have a material adverse effect on our business.

We have provided digital signage content management software to NEC.  Our software development agreement with NEC provided that NEC would own the software that we wrote.  NEC intends to bundle this software with hardware that they sell to their digital signage customers.  While the software developed for NEC does not encompass all of the features and functions of our proprietary RoninCast® software, the NEC software enables digital signage customers to implement basic digital signage applications.  While we believe that a certain number of those NEC customers beginning with the NEC software may come to want or need enhanced functionality of the RoninCast® software product, there is a risk that bundled software will cannibalize the demand for more fully featured products like RoninCast® digital signage software.  If bundling digital signage content management software with hardware becomes an industry standard, we could risk losing software licensing sales.  It is difficult for us to predict whether, when or the extent to which bundling digital signage content management software with hardware will become customary.  It is also difficult to predict the functionality of the software that hardware manufacturers may bundle with hardware. If more sophisticated and fully featured software is bundled with hardware, that bundling may negatively impact our RoninCast® software license sales and adversely affect our business. 

Our industry is characterized by frequent technological change. If we are unable to adapt our products and services and develop new products and services to keep up with these rapid changes, we will not be able to obtain or maintain market share.
 
The market for our products and services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, heavy competition and frequent new product and service introductions. If we fail to develop new products and services or modify or improve existing products and services in response to these changes in technology, customer demands or industry standards, our products and services could become less competitive or obsolete.
 
We must respond to changing technology and industry standards in a timely and cost-effective manner. We may not be successful in using new technologies, developing new products and services or enhancing existing products and services in a timely and cost effective manner. Our pursuit of necessary technology may require substantial time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on commercially reasonable terms or at all. We may not succeed in adapting our products and services to new technologies as they emerge. Furthermore, even if we successfully adapt our products and services, these new technologies or enhancements may not achieve market acceptance.
 
            We have effected a substantial reduction in our associate headcount and several members of our management team were replaced in 2008 and 2009.  A failure to successfully adapt to these changes and/or a failure by the management team to successfully manage our operations may adversely affect our business.

During 2008 and 2009, we  made various organizational changes to our management team, including the replacement of our Chief Executive Officer, Chief Financial Officer and other leaders within our development team.  In addition, we had a  substantial reduction in our workforce during 2008 in an attempt to reduce our overall level of expenses.  Although the reductions have not resulted in any significant disruption to our business to date, we may need to add additional personnel to enable us to deliver our goods and services on a timeline required by our customers in the case of a large-scale rollout.  If we cannot operate our business in an effective manner, it may adversely affect our business, operating results and financial position.
    
Our future success depends on key personnel and our ability to attract and retain additional personnel.
 
Our key personnel include:
 
·
James C. Granger, our President, Chief Executive Officer and Director;
 
·
Darin P. McAreavey, our Vice President and Chief Financial Officer; and
 
·
Scott W. Koller, our Executive Vice President and Chief Operating Officer.
 
If we fail to retain our key personnel or to attract, retain and motivate other qualified employees, our ability to maintain and develop our business may be adversely affected. Our future success depends significantly on the continued service of our key technical, sales and senior management personnel and their ability to execute our growth strategy. The loss of the services of our key employees could harm our business. We may be unable to retain our employees or to attract, assimilate and retain other highly qualified employees who could migrate to other employers who offer competitive or superior compensation packages.
 
Our ability to execute our business strategy depends on our ability to protect our intellectual property, and if any third parties make unauthorized use of our intellectual property, or if our intellectual property rights are successfully challenged, our competitive position and business could suffer.
 
Our success and ability to compete depends substantially on our proprietary technologies. We regard our copyrights, service marks, trademarks, trade secrets and similar intellectual property as critical to our success, and we rely on trademark and copyright law, trade secret protection and confidentiality agreements with our employees, customers and others to protect our proprietary rights. Despite our precautions, unauthorized third parties might copy certain portions of our software or reverse engineer and use information that we regard as proprietary. In addition, confidentiality agreements with employees and others may not adequately protect against disclosure of our proprietary information.
 
As of December 31, 2009, we had one U.S. patent, and three U.S. and one Canadian patent applications pending relating to various aspects of our RoninCast® system. We cannot provide assurance that any additional patents will be granted. Even if they are granted, our patents may be successfully challenged by others or invalidated. In addition, any patents that may be granted to us may not provide us a significant competitive advantage. Although we have been granted patents and trademarks, they could be challenged in the future. If future trademark registrations are not approved because third parties own these trademarks, our use of these trademarks would be restricted unless we enter into arrangements with the third party owners, which might not be possible on commercially reasonable terms or at all. If we fail to protect or enforce our intellectual property rights successfully, our competitive position could suffer. We may be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to detect infringement and may lose competitive position in the market. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share.
  
Our industry is characterized by frequent intellectual property litigation, and we could face claims of infringement by others in our industry. Such claims are costly and add uncertainty to our business strategy.
 
The digital media and communications industry is characterized by uncertain and conflicting intellectual property claims and frequent intellectual property litigation, especially regarding patent rights. We could be subject to claims of infringement of third party intellectual property rights, which could result in significant expense and could ultimately result in the loss of our intellectual property rights. From time to time, third parties may assert patent, copyright, trademark or other intellectual property rights to technologies that are important to our business. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our industry of which we are not aware. We may in the future receive notices of claims that our products infringe or may infringe intellectual property rights of third parties. Any litigation to determine the validity of these claims, including claims arising through our contractual indemnification of our business partners, regardless of their merit or resolution, would likely be costly and time consuming and divert the efforts and attention of our management and technical personnel. If any such litigation resulted in an adverse ruling, we could be required to:
 
·
pay substantial damages;
 
·
cease the development, use, licensing or sale of infringing products;
 
·
discontinue the use of certain technology; or
 
·
obtain a license under the intellectual property rights of the third party claiming infringement, which license may not be available on reasonable terms or at all.
 
 
Our business may be adversely affected by malicious applications that interfere with, or exploit security flaws in, our products and services.
 
Our business may be adversely affected by malicious applications that make changes to our customers’ computer systems and interfere with the operation and use of our products. These applications may attempt to interfere with our ability to communicate with our customers’ devices. The interference may occur without disclosure to or consent from our customers, resulting in a negative experience that our customers may associate with our products. These applications may be difficult or impossible to uninstall or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. In addition, we offer a number of products and services that our customers download to their computers or that they rely on to store information and transmit information over the Internet. These products and services are subject to attack by viruses, worms and other malicious software programs, which could jeopardize the security of information stored in a customer’s computer or in our computer systems and networks. The ability to reach customers and provide them with a superior product experience is critical to our success. If our efforts to combat these malicious applications fail, or if our products and services have actual or perceived vulnerabilities, there may be claims based on such failure or our reputation may be harmed, which would damage our business and financial condition.
 
We could have liability arising out of our previous sales of unregistered securities.
 
Prior to our initial public offering, we financed our development and operations with proceeds from the sale of debt and equity securities to accredited investors. These securities were not registered under federal or state securities laws because we believed such sales were exempt under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and under Regulation D under the Securities Act. In addition, we issued stock purchase warrants to independent contractors and associates as compensation or as incentives for future performance in reliance upon the exemption provided by Rule 701 promulgated under Section 3(b) of the Securities Act. We have received no claim that such sales were in violation of securities registration requirements under such laws, but should a claim be made, we would have the burden of demonstrating that the sales were exempt from such registration requirements. In addition, it is possible that a purchaser of our securities could claim that disclosures to them in connection with such sales were inadequate, creating potential liability under the anti-fraud provisions of federal and state securities or other laws. If successful, claims under such laws could require us to pay damages, perform rescission offers, and/or pay interest on amounts invested and attorneys’ fees and costs. Depending upon the magnitude of a judgment against us in any such actions, our financial condition and prospects could be materially and adversely affected.
 
We compete with other companies that have more resources, which puts us at a competitive disadvantage.
 
The market for digital signage software and systems is highly competitive and we expect competition to increase in the future. Some of our competitors or potential competitors may have significantly greater financial, technical and marketing resources than our company. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. They may also devote greater resources to the development, promotion and sale of their products than our company.
 
We expect competitors to continue to improve the performance of their current products and to introduce new products, services and technologies. Successful new product and service introductions or enhancements by our competitors could reduce sales and the market acceptance of our products and services, cause intense price competition or make our products and services obsolete. To be competitive, we must continue to invest significant resources in research and development, sales and marketing and customer support. If we do not have sufficient resources to make these investments or are unable to make the technological advances necessary to be competitive, our competitive position will suffer. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could adversely affect our business and financial condition.
 
Our results of operations may depend upon selling our products and services to customers requiring large-scale rollouts and large-scale monitoring and maintenance, which we have not previously conducted.
 
Our results of operations may depend upon selling our products and services to those companies, and within those industries, that have many sites that could benefit from digital signage systems. Digital signage systems installation projects deploying hundreds or even thousands of systems present significant technical and logistical challenges that we have not yet demonstrated our ability to overcome. Digital signage technology employs sophisticated hardware and software that constantly evolves. Sites into which digital signage systems may be installed vary widely, including such factors as interference with wireless networks, ambient light, extremes of temperature and other factors that may make each individual location virtually unique. Managing the process of installing hundreds or thousands of dynamic, complicated digital signage systems into unique environments may present difficulties that we have not yet faced on projects performed to date with smaller numbers of digital signage systems. If our customers opt to engage us to provide system monitoring and maintenance services through our network operations center, or NOC, on one or more large-scale implementations, we may not successfully or profitably monitor and maintain the hardware, software and content in a manner satisfactory to our customers or in compliance with our contractual obligations. The efficiency and effectiveness of NOC monitoring and maintenance are directly affected by our software and that software’s ability to monitor our customers’ systems. For large-scale implementations, we may need to further develop our software to facilitate efficient and effective system monitoring and maintenance. We cannot assure you that we will succeed in developing our software, digital signage systems, project management and infrastructure to successfully implement, monitor, manage and maintain large-scale implementation projects or ongoing operations. Our failure to do so could harm our business and financial condition.
  
We may be subject to sales and other taxes, which could have adverse effects on our business.
 
In accordance with current federal, state and local tax laws, and the constitutional limitations thereon, we currently collect sales, use or other similar taxes in state and local jurisdictions where we have a physical presence that we understand to be sufficient to require us to collect and remit such taxes. One or more state or local jurisdictions may seek to impose sales tax collection obligations on us and other out-of-state companies which engage in commerce with persons in that state. Several U.S. states have taken various initiatives to prompt more sellers to collect local and state sales taxes. Furthermore, tax law and the interpretation of constitutional limitations thereon are subject to change. In addition, new or expanded business operations in states where we do not currently have a physical presence sufficient to obligate us to collect and remit taxes could subject shipments of goods into or provision of services in such states to sales tax under current or future laws. If our company grows, increased sales of our products and services to locations in various states and municipalities may obligate us to collect and remit sales tax and to pay state income and other taxes based upon increased presence in those jurisdictions. We will endeavor to collect, remit and pay those state and local taxes that we owe according to applicable law. State and local tax laws are, however, subject to change, highly complex and diverse from jurisdiction to jurisdiction. If one or more state or local jurisdictions successfully asserts that we must collect sales or other taxes beyond our current practices or that we owe unpaid sales or other taxes and penalties, it could adversely affect our business and financial condition.
 
We have received tax notices from local jurisdictions in Michigan seeking payment of property taxes for digital signage systems originally owned by NewSight Corporation in Meijer, Inc. stores but later subject to our collateral interest when we converted the NewSight account receivable to a secured promissory note.   Subsequent to our contractual agreement with NewSight to take ownership of hardware composing the digital signage networks to satisfy NewSight’s debt, local jurisdictions in Michigan asserted that we owed property taxes on such systems.  We have transferred ownership of these systems to Meijer, Inc. and its affiliates for a nominal sum.  We made this transfer in light of the facts that the network was not useful to us, had no commercial value, and that the costs of removing the hardware would be far greater than any amount we could recover from selling that hardware.  As a result, we believe that we owe nothing to the local taxing authorities, but this is a determination that could be subject to dispute.  We do not believe that any amount that we expend to resolve the matter will be material but we cannot assure you of the outcome with certainty.
 
Our results of operations could be adversely affected by changes in foreign currency exchange rates, particularly fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar.
 
Since a portion of our operations and revenue occur outside the United States and in currencies other than the U.S. dollar, our results could be adversely affected by changes in foreign currency exchange rates. Additionally, given our ownership of Wireless Ronin Technologies (Canada), Inc., changes in the exchange rate between the U.S. dollar and the Canadian dollar can significantly affect inter-company balances and our results of operations.
  
Risks Related to Our Securities
 
We are subject to financial reporting and other requirements for which our accounting, other management systems and resources may not be adequately prepared.
 
As a public company, we incur significant legal, accounting and other expenses,  including costs associated with reporting requirements and corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and NASDAQ, which are subject to change from time to time.
 
If we identify significant deficiencies or material weaknesses in our internal control over financial reporting that we cannot remediate in a timely manner, or if we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal control over financial reporting, investors and others may lose confidence in the reliability of our financial statements, and the trading price of our common stock and ability to obtain any necessary equity or debt financing could suffer. In addition, if our independent registered public accounting firm is unable to rely on our internal control over financial reporting in connection with its audit of our financial statements, and if it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our annual report with the SEC, which could also adversely affect the trading price of our common stock and our ability to secure any necessary additional financing, and could result in the delisting of our common stock from NASDAQ and the ineligibility of our common stock for quotation on the OTC Bulletin Board. In that event, the liquidity of our common stock would be severely limited and the market price of our common stock would likely decline significantly.
 
In addition, the foregoing regulatory requirements could make it difficult or costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on board committees or as executive officers.
 
If we fail to comply with the NASDAQ requirements for continued listing, our common stock could be delisted from NASDAQ, which could hinder our investors’ ability to trade our common stock in the secondary market.
 
Generally, our common stock must sustain a minimum bid price of at least $1.00 per share and we must satisfy the other requirements for continued listing on NASDAQ. If our common stock is delisted from NASDAQ, trading in our common stock would likely thereafter be conducted in the over-the-counter markets in the so-called pink sheets or the OTC Bulletin Board. In such event, the liquidity of our common stock would likely be impaired, not only in the number of shares which could be bought and sold, but also through delays in the timing of the transactions, and there would likely be a reduction in the coverage of our company by securities analysts and the news media, thereby resulting in lower prices for our common stock than might otherwise prevail.
  
The market price of our stock may be subject to wide fluctuations.
 
The price of our common stock may fluctuate, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause our investors to lose part or all of their investment in our shares of common stock. Factors that could cause fluctuations include, but are not limited to, the following:
 
·
price and volume fluctuations in the overall stock market from time to time;
 
·
significant volatility in the market price and trading volume of companies in our industry;
 
·
actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of financial market analysts;
 
·
investor perceptions of our industry, in general, and our company, in particular;
 
·
the operating and stock performance of comparable companies;
 
·
general economic conditions and trends;
 
·
major catastrophic events;
 
·
loss of external funding sources;
 
·
sales of large blocks of our stock or sales by insiders; or
 
·
departures of key personnel.
 
Our articles of incorporation, bylaws and Minnesota law may discourage takeovers and business combinations that our shareholders might consider in their best interests.
 
Anti-takeover provisions of our articles of incorporation, bylaws, and Minnesota law could diminish the opportunity for shareholders to participate in acquisition proposals at a price above the then current market price of our common stock. For example, while we have no present plans to issue any preferred stock, our board of directors, without further shareholder approval, may issue up to 16.7 million shares of undesignated preferred stock and fix the powers, preferences, rights and limitations of such class or series, which could adversely affect the voting power of our common stock. In addition, our bylaws provide for an advance notice procedure for nomination of candidates to our board of directors that could have the effect of delaying, deterring or preventing a change in control. Further, as a Minnesota corporation, we are subject to provisions of the Minnesota Business Corporation Act, or MBCA, regarding “control share acquisitions” and “business combinations.” We may, in the future, consider adopting additional anti-takeover measures. The authority of our board of directors to issue undesignated preferred stock and the anti-takeover provisions of the MBCA, as well as any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter or prevent takeover attempts and other changes in control of our company not approved by our board of directors.
 
We do not anticipate paying cash dividends on our shares of common stock in the foreseeable future.
 
We have never declared or paid any cash dividends on our shares of common stock. We intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on our shares of common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for investors in our common stock for the foreseeable future.
  
A substantial number of shares are eligible for future sale by our current investors and the sale of those shares could adversely affect our stock price.
 
We have registered for resale 2.3 million shares of our outstanding common stock and 1.6 million shares underlying warrants under the registration statement that was originally declared effective by the SEC on February 8, 2007.    If these shares, or additional shares that may be eligible for resale into the market, are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could be adversely affected.

ITEM 1B
UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2
PROPERTIES
 
We conduct our U.S. operations from a leased facility located at 5929 Baker Road in Minnetonka, Minnesota. We lease approximately 19,000 square feet of office and warehouse space under a lease that extends through January 31, 2013.  In addition, we lease office space of approximately 10,000 square feet to support our Canadian operations at a facility located at 4510 Rhodes Drive, Suite 800, Windsor, Ontario, Canada under a lease that extends through June 30, 2014.
 
We believe the facilities used in our operations are suitable for their respective uses and are adequate to meet our current needs.
 
LEGAL PROCEEDINGS
 
We were not party to any material legal proceedings as of March 26, 2010.
 
ITEM 4
(REMOVED AND RESERVED)
 
PART II
 
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information
 
Our common stock has traded on the NASDAQ Global Market since September 21, 2007, and was previously traded on the NASDAQ Capital Market since November 27, 2006, under the symbol “RNIN.” The following table sets forth, for the periods indicated, the high and low closing prices for our common stock as reported by that market.  Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 

   
High
   
Low
 
2009
           
First Quarter
  $ 2.32     $ 0.80  
Second Quarter
  $ 3.03     $ 1.60  
Third Quarter
  $ 4.07     $ 2.19  
Fourth Quarter
  $ 3.99     $ 2.62  
                 
2008
               
First Quarter
  $ 4.56     $ 2.90  
Second Quarter
  $ 7.33     $ 3.97  
Third Quarter
  $ 5.57     $ 2.12  
Fourth Quarter
  $ 2.43     $ 0.42  

Shareholders
 
As of March 26, 2010, we had 88 holders of record of our common stock.
 
Dividend Policy
 
We have never declared or paid cash dividends on our common stock.  We currently intend to retain future earnings, if any, to operate and expand our business, and we do not anticipate paying cash dividends on our common stock in the foreseeable future.  Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
See “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in Item 12 for information regarding securities authorized for issuance under our equity compensation plans.
 
Stock Performance Graph
 
The following performance graph compares our cumulative shareholder return with the Nasdaq Composite Index and issuers with similar market capitalizations, as denoted by the Russell 2000 Index (because we are unable to reasonably identify a peer group).  The table below compares the cumulative total return assuming $100 was invested as of November 27, 2006 (the date of our initial public offering), in our common stock, the Nasdaq Composite Index and the Russell 2000 Index.  The graph assumes the reinvestment of all dividends.  The indexes are weighted based on market capitalization at the time of each reported data point.
 
 

 
Sales of Unregistered Securities During the Fourth Quarter of Fiscal Year 2009
 
None.
 
ITEM 6
SELECTED FINANCIAL DATA
 
The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis - Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in Item 7 of this Form 10-K to fully understand factors that may affect the comparability of the information presented below (in thousands, except per share amounts.)
 
 

   
December 31,
   
2009
   
2008
   
2007
   
2006
   
2005
 
 Balance Sheet Data:
                             
 Current assets
  $ 13,705     $ 16,157     $ 34,923     $ 16,700     $ 768  
 Total assets
    15,347       18,560       40,369       17,546       1,313  
 Current liabilities
    1,589       2,387       4,610       1,653       7,250  
 Non-current liabilities
    -       -       71       155       1,668  
 Total liabilities
    1,589       2,387       4,681       1,808       8,919  
 Shareholder's equity (deficit)
  $ 13,758     $ 16,173     $ 35,688     $ 15,738     $ (7,606 )
                                         
                                         
   
For the Years Ended December 31,
 
      2009       2008       2007       2006       2005  
 Statement of Operations Data:
                                       
 Sales
  $ 5,009     $ 7,381     $ 5,985     $ 3,145     $ 710  
 Cost of sales
    3,586       6,589       3,892       1,545       940  
 Gross profit
    1,423       792       2,093       1,600       (230 )
 Selling, general and administrative and other
    9,509       19,564       12,210       5,043       2,889  
 Research and development expenses
    2,167       2,541       1,198       876       882  
 Total operating expenses
    11,676       22,105       13,408       5,919       3,771  
 Operating loss
    (10,253 )     (21,313 )     (11,315 )     (4,319 )     (4,001 )
 Other income (expense)
    70       621       1,229       (10,469 )     (789 )
 Net loss
  $ (10,183 )   $ (20,692 )   $ (10,086 )   $ (14,788 )   $ (4,790 )
 Basic and diluted loss per common share
  $ (0.67 )   $ (1.41 )   $ (0.82 )   $ (9.71 )   $ (7.18 )
 Basic and diluted weighted average shares outstanding
    15,274       14,664       12,314       1,523       667  

ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
Forward-Looking Statements
 
The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth in Item 1A under the caption “Risk Factors.”
 
Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.
 
Overview
 
Wireless Ronin Technologies, Inc. (“RNIN”) is a Minnesota corporation that provides dynamic digital signage solutions targeting specific retail and service markets. We designed and developed RoninCast®, a proprietary content delivery system that manages, schedules and delivers digital content over a wireless or wired network. Our solutions, the digital alternative to static signage, provide business customers with a dynamic and



interactive visual marketing system designed to enhance the way they advertise, market and deliver their messages to targeted audiences.

Our wholly-owned subsidiary, Wireless Ronin Technologies (Canada), Inc. (“RNIN Canada”), an Ontario, Canada provincial corporation located in Windsor, Ontario, maintains a vertical specific focus in the automotive industry and houses our Content Engineering operation. RNIN Canada develops digital content and sales support systems to help retailers train their sales staff and educate their customers at the point of sale. Today, the capabilities of this operation are integrated with our historical business to provide content solutions to all of our clients.

Our company and our subsidiary sell products and services primarily throughout North America.

Our Sources of Revenue
 
We generate revenues through system sales, license fees and separate service fees, including consulting, content development and implementation services, as well as ongoing customer support and maintenance, including product upgrades. We currently market and sell our software and service solutions through our direct sales force, strategic partnerships and business alliances.
 
Our Expenses
 
           Our expenses are primarily comprised of three categories: sales and marketing, research and development and general and administrative. Sales and marketing expenses include salaries and benefits for our sales associates and commissions paid on sales. This category also includes amounts spent on the hardware and software we use to prospect new customers, including those expenses incurred in trade shows and product demonstrations. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our software products including RoninCast® and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.
 
Critical Accounting Policies and Estimates
 
           The preparation of financial statements in conformity with accounting principles generally accepted in the U.S., or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In recording transactions and balances resulting from business operations, we use estimates based on the best information available. We use estimates for such items as depreciable lives, volatility factors in determining fair value of options and warrants, tax provisions, recognition of revenue under fixed price contracts, provisions for uncollectible receivables and deferred revenue.  We revise the recorded estimates when better information is available, facts change or we can determine actual amounts. These revisions can affect operating results. We have identified below the following accounting policies that we consider to be critical.
 
Revenue Recognition
 
We recognize revenue primarily from these sources:
 
 
·
Software and software license sales
 
·
System hardware sales
 
·
Professional service revenue
 
·
Software design and development services
 
·
Implementation services
 
·
Maintenance and hosting support contracts
 
We apply the provisions of Accounting Standards Codification subtopic 605-985, Revenue Recognition: Software (or ASC 605-35) to all transactions involving the sale of software licenses. In the event of a multiple element arrangement, we evaluate if each element represents a separate unit of accounting, taking into account all factors following the guidelines set forth in “FASB ASC 605-985-25-5.”

 
We recognize revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred, which is when product title transfers to the customer, or services have been rendered; (iii) customer payment is deemed fixed or determinable and free of contingencies and significant uncertainties; and (iv) collection is probable. We assess collectability based on a number of factors, including the customer’s past payment history and its current creditworthiness. If it is determined that collection of a fee is not reasonably assured, we defer the revenue and recognizes it at the time collection becomes reasonably assured, which is generally upon receipt of cash payment. If an acceptance period is required, revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period.

Multiple-Element Arrangements — We enter into arrangements with customers that include a combination of software products, system hardware, maintenance and support, or installation and training services. We allocate the total arrangement fee among the various elements of the arrangement based on the relative fair value of each of the undelivered elements determined by vendor-specific objective evidence (VSOE). In software arrangements for which we do not have VSOE of fair value for all elements, revenue is deferred until the earlier of when VSOE is determined for the undelivered elements (residual method) or when all elements for which we do not have VSOE of fair value have been delivered.

The VSOE for maintenance and support services is based upon the renewal rate for continued service arrangements. The VSOE of installation and training services is established based upon pricing for the services. The VSOE of software and licenses is based on the normal pricing and discounting for the product when sold separately.

Each element of our multiple element arrangements qualifies for separate accounting.  However, when a sale includes both software and maintenance, we  defer revenue under the residual method of accounting.  Under this method, the undelivered maintenance and support fees included in the price of software is amortized ratably over the period the services are provided. We defer maintenance and support fees based upon the customer’s renewal rate for these services.

Software and software license sales

We recognize revenue when a fixed fee order has been received and delivery has occurred to the customer. We assess whether the fee is fixed or determinable and free of contingencies based upon signed agreements received from the customer confirming terms of the transaction. Software is delivered to customers electronically or on a CD-ROM, and license files are delivered electronically.

System hardware sales

We recognize revenue on system hardware sales generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer. Shipping charges billed to customers are included in sales and the related shipping costs are included in cost of sales.

Professional service revenue

Included in services and other revenues is revenue derived from implementation, maintenance and support contracts, content development, software development and training. The majority of consulting and implementation services and accompanying agreements qualify for separate accounting. Implementation and content development services are bid either on a fixed-fee basis or on a time-and-materials basis. For time-and-materials contracts, we recognize revenue as services are performed. For fixed-fee contracts, we recognize revenue upon completion of specific contractual milestones or by using the percentage-of-completion method.
 

 
Software design and development services

Revenue from contracts for technology integration consulting services where we design/redesign, build and implement new or enhanced systems applications and related processes for clients are recognized on the percentage-of-completion method in accordance with “FASB ASC 605-985-25-88 through 107.”  Percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. Estimated revenues for applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable. This method is followed where reasonably dependable estimates of revenues and costs can be made. We measure our progress for completion based on either the hours worked as a percentage of the total number of hours of the project or by delivery and customer acceptance of specific milestones as outlined per the terms of the agreement with the customer.  Estimates of total contract revenue and costs are continuously monitored during the term of the contract, and recorded revenue and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenue and income and are reflected in the financial statements in the periods in which they are first identified. If estimates indicate that a contract loss will occur, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in cost of sales and classified in accrued expenses in the balance sheet.  Our presentation of revenue recognized on a contract completion basis has been consistently applied for all periods presented.
 
We classify the revenue and associated cost on the “Services and Other” line within the “Sales” and “Cost of Sales” sections of the Consolidated Statement of Operations.  In all cases where we apply the contract method of accounting, our only deliverable is professional services, thus, we believe presenting the revenue on a single line is appropriate.

Revenue recognized in excess of billings is recorded as unbilled services. Billings in excess of revenue recognized are recorded as deferred revenue until revenue recognition criteria are met.

Implementation services

Implementation services revenue is recognized when installation is completed.

Maintenance and hosting support contracts

Maintenance and hosting support consists of software updates and support. Software updates provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Support includes access to technical support personnel for software and hardware issues. We also offer a hosting service through our network operations center, or NOC, allowing the ability to monitor and support our customers’ networks 7 days a week, 24 hours a day.

Maintenance and hosting support revenue is recognized ratably over the term of the maintenance contract, which is typically one to three years. Maintenance and support is renewable by the customer. Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the arrangement.  Our hosting support agreement fees are based on the level of service we provide to our customers, which can range from monitoring the health of our customer’s network to supporting a sophisticated web-portal.

Basic and Diluted Loss per Common Share
 
Basic and diluted loss per common share for all periods presented is computed using the weighted average number of common shares outstanding. Basic weighted average shares outstanding include only outstanding common shares.   Diluted net loss per common share is computed by dividing net loss by the weighted average common and potential dilutive common shares outstanding computed in accordance with the treasury stock method.  Shares reserved for outstanding stock warrants and options totaling 3.2 million, 3.6 million and 3.5 million for 2009, 2008 and 2007, respectively, were excluded from the computation of loss per share as their effect was antidilutive due to our net loss in each of those years.
 
Deferred Income Taxes
 
           Deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from net operating losses, reserves for uncollectible accounts receivables and inventory, differences in depreciation methods, and accrued expenses. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
 
Accounting for Stock-Based Compensation
 
We account for stock-based compensation in accordance with “FASB ASC 718-10.”  Stock-based compensation expense recognized during the period is based on the value of the portion of share-based awards that are ultimately expected to vest during the period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock is determined based on the number of shares granted and the closing price of the Company’s common stock on the date of grant. Compensation expense for all share-based payment awards is recognized using the straight-line amortization method over the vesting period.   Stock-based compensation expense of $0.7 million, $1.3 million and $1.2 million was charged to operating expenses during 2009, 2008 and 2007, respectively.  No tax benefit has been recorded due to the full valuation allowance on deferred tax assets that we have recorded.

           We have adopted the guidance of FASB ASC 718-10-S99-1 for purposes of determining the expected term for stock options. Due to the limited historical data to rely upon, we use the “simplified” method in developing an estimate of expected term for stock options by the FASB guidance prescribed above.
 
           We account for equity instruments issued for services and goods to non-employees under “FASB ASC 505-50-1” Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and “FASB ASC 505-50-25” Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.  Generally, the equity instruments issued for services and goods are shares of our common stock or warrants to purchase shares of our common stock. These shares or warrants generally are fully-vested, nonforfeitable and exercisable at the date of grant and require no future performance commitment by the recipient. We expense the fair market value of these securities over the period in which the related services are received.
 
           See Note 9 in the Consolidated Financial Statements in this Form 10-K for further information regarding the impact of FASB ASC 718-10 and the assumptions we use to calculate the fair value of stock-based compensation.



Results of Operations
 
Our results of operations for the years ended 2009, 2008 and 2007 were as follows:

   
For the Years Ended December 31,
 
   
(in thousands)
 
   
2009
   
2008
   
2007
 
 Sales
  $ 5,009     $ 7,381     $ 5,985  
 Cost of sales (exclusive of depreciation and amortization shown separately below)
    3,586       6,589       3,892  
 Gross profit
    1,423       792       2,093  
 Sales and marketing expenses
    2,520       3,999       2,805  
 Research and development expenses
    2,167       2,541       1,198  
 General and administrative expenses
    6,168       11,258       8,049  
 Depreciation and amortization expense
    771       1,226       652  
 Impairment of network equipment held for sale
    -       1,766       -  
 Impairment of intangible assets
    -       1,265       -  
 Termination of partnership agreement
    50       50       704  
 Total operating expenses
    11,676       22,105       13,408  
 Operating loss
    (10,253 )     (21,313 )     (11,315 )
 Other income (expenses):
                       
 Interest expense
    (6 )     (22 )     (40 )
 Interest income
    76       647       1,278  
 Other
    -       (4 )     (9 )
 Total other income
    70       621       1,229  
 Net loss
  $ (10,183 )   $ (20,692 )   $ (10,086 )


Our results of operations as a percentage of sales for the years ended 2009, 2008 and 2007 were as follows:

   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
 Sales
    100.0 %     100.0 %     100.0 %
 Cost of sales (exclusive of depreciation and amortization shown separately below)
    71.6 %     89.3 %     65.0 %
 Gross profit
    28.4 %     10.7 %     35.0 %
 Sales and marketing expenses
    50.3 %     54.2 %     46.9 %
 Research and development expenses
    43.3 %     34.4 %     20.0 %
 General and administrative expenses
    123.1 %     152.5 %     134.5 %
 Depreciation and amortization expense
    15.4 %     16.6 %     10.9 %
 Impairment of network equipment held for sale
    -       23.9 %     -  
 Impairment of intangible assets
    -       17.1 %     -  
 Termination of partnership agreement
    1.0 %     0.7 %     11.8 %
 Total operating expenses
    233.1 %     299.4 %     224.1 %
 Operating loss
    (204.7 %)     (288.7 %)     (189.1 %)
 Other income (expenses):
                       
 Interest expense
    (0.1 %)     (0.3 %)     (0.7 %)
 Interest income
    1.5 %     8.8 %     21.4 %
 Other
    -       (0.1 %)     (0.2 %)
 Total other income
    1.4 %     8.4 %     20.5 %
 Net loss
    (203.3 %)     (280.3 %)     (168.6 %)

 
2009 compared to 2008
 
Sales
 
           Our sales decreased 32% to $5.0 million in 2009 from $7.4 million in 2008. The year-over-year decline in revenue was primarily attributable to the lower levels of revenue generated from a slowly-recovering automotive industry and limited deployment of digital menu boards for quick serve restaurants.  In 2009, we recognized $0.7 million of revenue from Chrysler LLC and BBDO (Detroit/Windsor), which is an advertising agent for Chrysler, and $0.5 million from KFC, compared to $2.3 million and $1.3 million for the prior year, respectively.  Partially offsetting this decline was an increase in our sales to Aramark, which totaled $1.1 million in 2009 compared to $0.4 million in 2008.  Our hardware sales in 2009 of $1.9 million were lower than our 2008 hardware sales of $2.5 million as a result of certain customers choosing to contract directly with display and media-player suppliers.  Excluding the resale of a 2008 software order we received from Dimensional Innovations, who is a non-core customer totaling $0.3 million, sales of our proprietary RoninCast® software in 2009 were up 24% or $0.1 million when compared to the prior year.  Our decline in services revenue in 2009 when compared to 2008 was primarily the result of a decline in revenue generated from Chrysler LLC and BBDO, as mentioned above.  Revenues generated outside of the U.S. and Canada increased $0.5 million in 2009 when compared to the prior year as a result of an increase in sales to Thomson Reuters.  Due to the current economic environment and the lengthy sales cycle associated with deploying large scale digital menu boards, we are not able to predict or forecast our future revenues with any degree of precision at this time.
 
Cost of Sales
 
           Our cost of sales declined 46% to $3.6 million in 2009 from $6.6 million in 2008.  The decrease in cost of sales was due to the year-over-year decreases in hardware and services revenues of $0.6 million and $1.6 million, respectively, and also a reduction in compensation related employees costs due to the workforce reductions taken in the fourth quarter of 2008 to better match our infrastructure and expenses with sales levels and current client projects.
 
Operating Expenses
 
           Sales and marketing expense includes the salaries, employee benefits, commissions, stock compensation expense, travel and overhead costs of our sales and marketing personnel, as well as trade show activities and other marketing costs.  Total sales and marketing expenses declined 37% to $2.5 million in 2009 from $4.0 million in 2008.  The reduction in sales and marketing expenses related to a decrease in compensation and benefits, along with lower travel-related expenses, as a result of the workforce reductions taken in the fourth quarter of 2008. In addition, we reduced the level of spending related to tradeshows and other marketing initiatives in 2009 compared to the prior year period.   Compensation and benefits, including stock compensation expense totaled $1.8 million for 2009, compared to $2.4 million for the prior year.  Travel expenses were $0.2 million for 2009, compared to $0.5 million for the prior year.  Tradeshows and other marketing initiatives during 2009 totaled $0.5 million, compared to $1.1 million during the prior year.  We traditionally incur higher levels of tradeshow expenditures in the first quarter of our fiscal year compared to the remaining three quarters.   Any significant increase in our sales and marketing expenses for 2010 relative to 2009 would be the result of higher levels of commission expense resulting from an increase in our revenues as we do not anticipate higher costs associated with tradeshows or marketing initiatives.

           Research and development expense includes salaries, employee benefits, stock compensation expense, related overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation.  Total research and development expenses for 2009 declined 15% to $2.2 million from $2.5 million in 2008.   The decline was primarily the result of lower compensation and benefits expenses.  We remain committed to enhancing our RoninCast® software, which is critical for our success as the requirements for a more sophisticated dynamic digital signage platform continue to evolve.    We continue to expect our research and development expenses for 2010 to remain at levels similar to fiscal 2009.
 
           General and administrative expense includes the salaries, employee benefits, stock compensation expense and related overhead cost of our finance, information technology, human resources and administrative employees, as well as legal and accounting expenses, consulting and contractor fees and bad debt expense. Total general and administrative expenses for 2009 decreased 45% to $6.2 million from $11.3 million in 2008.  The decline was primarily the result of a decrease in compensation and benefits, along with reduced contractor costs as a result of the workforce reductions taken in the fourth quarter of 2008, along with other staff reductions taken primarily during the first half of 2009, partially offset by payment of severance benefits.   To streamline our operations and adjust our expenses to reflect the declining revenues, the company made further organizational changes during 2009 through a reduction and temporary layoffs of our workforce, both in the U.S. and Canada.  Total compensation to employees and contractors, including benefits and stock compensation expense totaled $3.8 million in 2009 compared to $6.3 million for the same period in the prior year.   In addition to the reduction attributable to the workforce reductions taken in 2008, our stock compensation expense decreased $0.6 million in 2009 when compared to the prior year period.    Professional fees paid to outside legal and accounting firms also decreased in 2009 when compared to 2008.   Our fees paid to outside consultants in 2009 totaled $0.6 million compared to $2.4 million for the prior year.  The remaining decreases were due to an across-the-board reduction in almost all expense categories as a result of better aligning our expenses with the lower levels of revenue. We believe our general and administrative costs will not increase significantly in 2010 when compared to our fiscal year 2009.

           For fiscal year 2008, we recorded $0.7 million of severance expense in general and administrative expense related to our June 2008 separation with our former Chief Financial Officer and our September 2008 separation with our former Chief Executive Officer.   For fiscal 2009, we recorded $0.4 million of severance expense in general and administrative expense related to our March 2009 separation with our former Executive Vice President, Content Engineering and President, RNIN Canada and our April 2009 separation with our former Vice President, Controller and Interim Chief Financial Officer.
 
 
           
    In November and December 2008, we announced workforce reductions of 35 and 27 people, respectively, including both employees and contractors at both our U.S. and Canadian operations.  Coupled with three other U.S. employee resignations prior to the 2008 December reduction in force, these actions resulted in an approximate 40% total headcount reduction during the fourth quarter of 2008.  These two workforce reductions were intended to align our expense base with the current level of sales and projects, and improve the overall efficiency of the organization.  The combined severance charge from the two workforce reductions totaled approximately $0.3 million.  Of such charge, $0.1 million related to general and administrative expense and $0.2 million was related to research and development expense.
 
           Depreciation and amortization expense.  Our depreciation and amortization expense consists primarily of depreciation of computer equipment and office furniture and the amortization of purchased software, leasehold improvements made to our leased facilities and amortization of our acquisition-related intangible assets recorded from our acquisition of McGill Digital Solutions, now RNIN Canada, in August 2007.  Depreciation and amortization expense decreased 37% to $0.8 million in 2009, from $1.2 million in 2008.  The decrease in 2009 was primarily the result of recording an impairment charge during the fourth quarter of 2008 for the remaining value of our acquisition-related intangible assets.
 
           Impairment of Network Equipment Held for Sale.  In the third quarter of 2008, we re-classified a net receivable balance of $1.9 million to network equipment held for sale when NewSight Corporation defaulted on its note payable obligation and we took ownership of collateral including in-box inventory and an installed digital signage network in 102 Meijer stores.  At the time of re-classification, Meijer, a grocery store chain in the Midwest, was seeking a new network owner and we intended to sell the network to the new owner.  Subsequent to December 31, 2008, Meijer abandoned plans to maintain the network.  As a result, we moved approximately $0.2 million of equipment from the in-box collateral base into inventory and recorded an impairment loss in the fourth quarter of 2008 on the remaining $1.8 million of network equipment held for sale.
 
           Impairment of Intangible Assets.  In the fourth quarter of 2008, we recorded an impairment charge for the assets related to the 2007 acquisition of McGill Digital Solutions.  We reviewed the carrying value of all long-lived assets, including intangible assets with finite lives, for impairment in accordance with FASB ASC 360-10-05-4.  Under ASC 360-10-05-4, impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.  We tested the intangible assets acquired in the 2007 acquisition for impairment in the fourth quarter of 2008 and determined that the underlying assumptions and economic conditions surrounding the initial valuation of these assets had significantly changed and an impairment loss was recorded for the total $1.3 million of net book value of these intangible assets.
 
           Termination of Partnership Agreement.  In February 2007, we terminated the strategic partnership agreement with The Marshall Special Assets Group, Inc. (“Marshall”) which we had entered into in May 2004. Pursuant to the terms of a mutual termination, release and agreement, we paid Marshall $0.7 million and we agreed to pay a fee in connection with sales of our software and hardware to customers, distributors and resellers for use exclusively in the ultimate operations of or for use in a lottery (“End Users”). Under such agreement, we agreed to pay Marshall (i) 30% of the net invoice price for the sale of our software to End Users, and (ii) 2% of the net invoice price for the sale of hardware to End Users, in each case collected by us on or before February 12, 2012, with a minimum annual payment of $50,000 for three years. Marshall agreed to pay 50% of the costs and expenses incurred by us in relation to any test installations involving sales or prospective sales to End Users.  In each of 2009 and 2008, we recorded $50,000 of expense pursuant to the minimum payments required under the agreement.
 
Interest Expense
 
In 2009 and 2008, interest expense of approximately $6,000 and $22,000, respectively, was attributable to capital lease obligations.  The decrease from 2008 to 2009 in interest expense was the result of lower capital lease balances.
 
 
 
2008 compared to 2007
 
Sales
 
           Our sales increased 23% to $7.4 million in 2008 from $6.0 million in 2007.  The increase in sales in 2008 was the result of new customer relationships, the expansion of existing customer relationships and a full year of sales from our Canadian operations, offset by the loss of a large customer from 2007.  Our acquisition of McGill Digital Solutions, Inc., now RNIN Canada, in August of 2007 generated approximately 41% and 23% of our total sales in 2008 and 2007, respectively.
 
Cost of Sales
 
           Cost of sales increased 69% to $6.6 million in 2008 from $3.9 million in 2007.  Cost of sales included inventory write-down amounts of $0.1 million in both 2008 and 2007, respectively.  The cost of sales increase was primarily attributable to a higher cost of hardware sales, higher costs to deliver content sales, installation costs related to one significant customer, an increased investment in our network operations center, or NOC, and a full year of costs from our Canadian operations.
 
Operating Expenses
 
           Sales and marketing expense includes the salaries, employee benefits, commissions, stock compensation expense, travel and overhead costs of our sales and marketing personnel, as well as trade show activities and other marketing costs.  Sales and marketing expense increased 43% to $4.0 million in 2008 from $2.8 million in 2007.  The increase in 2008 was due primarily to increased personnel and related expenses to support our growth initiatives as well as stock-based compensation expense related to stock options.

           Research and development expense includes salaries, employee benefits, stock compensation expense, related overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation.  Research and development expense increased 112% to $2.5 million in 2008, from $1.2 million in 2007.  The increase in 2008 was due primarily to increased personnel and related expenses to support our growth initiatives and added features and functionality to our RoninCast® software to support our vertical market strategy, as well as severance expense (described in detail below) incurred to align expenses with current client projects.

           General and administrative expense includes the salaries, employee benefits, stock compensation expense and related overhead cost of our finance, information technology, human resources and administrative employees, as well as legal and accounting expenses, consulting and contractor fees and bad debt expense. General and administrative expense increased 40% to $11.3 million in 2008, from $8.0 million in 2007.  The increase in 2008 was due primarily to increased personnel and related expenses to support our growth initiatives, stock-based compensation expense related to employee and director stock options and severance expense incurred to align expenses with sales levels.

           In 2008, our Chief Executive Officer and Chief Financial Officer resigned from our company.  We recorded in general and administrative expense a total of $0.7 million of severance expense related to these separations.
 
           In November and December 2008, we announced workforce reductions of 35 and 27 people, respectively, including both employees and contractors at both our U.S. and Canadian operations.  Coupled with three other U.S. employee resignations prior to the December reduction in force, these actions resulted in an approximate 40% total headcount reduction during the fourth quarter of 2008.  These two workforce reductions were intended to align our expense base with the current level of sales and projects, and improve the overall efficiency of the organization.  The combined severance charge from the two workforce reductions totaled approximately $0.3 million.  Of such charge, $0.1 million related to general and administrative expense and $0.2 million was related to research and development expense.
 
           Depreciation and amortization expense.  Our depreciation and amortization expense consists primarily of depreciation of computer equipment and office furniture and the amortization of purchased software, leasehold improvements made to our leased facilities and amortization of our acquisition-related intangible assets recorded from our acquisition of McGill Digital Solutions in August 2007.  Depreciation and amortization expense increased 88% to $1.2 million in 2008, from $0.7 million in 2007.  The increase in 2008 was due primarily to purchases of $1.1 million of capital equipment in 2008.  
 
Impairment of Network Equipment Held for Sale.  In the third quarter of 2008, we re-classified a net receivable balance of $1.9 million to network equipment held for sale when NewSight Corporation defaulted on its note payable obligation and we took ownership of collateral including in-box inventory and an installed digital signage network in 102 Meijer stores.  At the time of re-classification, Meijer, a grocery store chain in the Midwest, was seeking a new network owner and we intended to sell the network to the new owner.  Subsequent to December 31, 2008, Meijer abandoned plans to maintain the network.  As a result, we moved approximately $0.2 million of equipment from the in-box collateral base into inventory and recorded an impairment loss in the fourth quarter of 2008 on the remaining $1.8 million of network equipment held for sale.
 
           Impairment of Intangible Assets.  In the fourth quarter of 2008, we recorded an impairment charge for the assets related to the 2007 acquisition of McGill Digital Solutions.  We reviewed the carrying value of all long-lived assets, including intangible assets with finite lives, for impairment in accordance with FASB ASC 360-10-05-4.  Under ASC 360-10-05-4, impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.  We tested the intangible assets acquired in the 2007 acquisition for impairment in the fourth quarter of 2008 and determined that the underlying assumptions and economic conditions surrounding the initial valuation of these assets had significantly changed and an impairment loss was recorded for the total $1.3 million of net book value of these intangible assets.
 
           Termination of Partnership Agreement.  In February 2007, we terminated the strategic partnership agreement with The Marshall Special Assets Group, Inc. (“Marshall”) which we had entered into in May 2004. Pursuant to the terms of a mutual termination, release and agreement, we paid Marshall $0.7 million and we agreed to pay a fee in connection with sales of our software and hardware to customers, distributors and resellers for use exclusively in the ultimate operations of or for use in a lottery (“End Users”). Under such agreement, we agreed to pay Marshall (i) 30% of the net invoice price for the sale of our software to End Users, and (ii) 2% of the net invoice price for the sale of hardware to End Users, in each case collected by us on or before February 12, 2012, with a minimum annual payment of $50,000 for three years. Marshall agreed to pay 50% of the costs and expenses incurred by us in relation to any test installations involving sales or prospective sales to End Users.  In each of 2008 and 2007, we recorded $50,000 of expense pursuant to the minimum payment required under the agreement.
 
Interest Expense
 
In 2008 and 2007, interest expense of approximately $22,000 and $40,000, respectively, was attributable to capital lease obligations.

Liquidity and Capital Resources
 
As of December 31, 2009, we had $12.3 million of cash and cash equivalents, and working capital of $12.1 million.  As of December 31, 2009, we did not have any debt. We plan to use our available cash to fund operations, including the continued development of our products and attraction of new customers through sales and marketing initiatives.
 
Based on our current expense levels, we anticipate that our cash will be adequate to fund our operations through 2010.
 
Operating Activities
 
We do not currently generate positive cash flow. Our investments in infrastructure have been greater than sales generated to date. As of December 31, 2009, we had an accumulated deficit of $74.4 million. The cash flow used in operating activities was $8.2 million, $14.9 million and $9.7 million for the years ended December 31, 2009, 2008 and 2007.  In 2009, net cash used by operating activities was attributable to our net loss and a reduction in our accounts payable and accrued liabilities accounts.  These amounts were partially offset by cash provided by an overall reduction in our asset accounts and a higher balance of deferred revenue in 2009 when compared to the same balances in the prior year.  During 2009, we paid $0.6 million of severance-related costs which was included in our year-end accrued liabilities account at the end of 2008.   Our deferred revenue balance was higher at the end of 2009 compared to the same balance in 2008 as a result of us being unable to deliver and recognize revenue of $0.5 million related to a software development order received in December 2009.  Our accounts receivable balance at the end of 2009 was lower when compared to the year-end balance of 2008 as a result of a higher percent of sales in the fourth quarter of 2009 being billed and collected before year-end compared to the same period in the prior year.  We also recognized approximately $0.4 million less revenue in the fourth quarter of 2009 when compared to the same period in the prior year.   Our inventory balance at the end of 2009 was lower when compared to the year-end balance of 2008 as a result of certain customers deciding to source displays and media-players directly from third-party suppliers, as well as overall better inventory management.  In 2008, net cash used by operating activities was attributable to our net loss, increases in accounts receivable and prepaid expenses and decreases in accounts payable and deferred revenue, partially offset by decreases in inventory and corporate taxes receivable and increases in accrued liabilities. In 2007, net cash used by operating activities was attributable to our net loss, as well as increases in accounts receivable, inventories and other assets, partially offset by increases in deferred revenue, accounts payable and accrued liabilities.

 
Investing Activities
 
Net cash provided by investing activities was $8.2 million and $5.3 million for the years ended December 31, 2009 and 2008.  Net cash used in investing activities was $11.8 million for the year ended December 31, 2007.  In 2009 and 2008, net cash provided by investing activities was primarily the result of net sales of marketable securities of $8.3 million and $6.4 million, respectively.  During 2009, we invested primarily all of our cash into a commercial sweep account, as the investment interest rate was higher than interest rates of other high-grade short-term investments.  The net sales of marketable securities in 2009 and 2008 were partially offset by purchases of property and equipment of $0.1 million and $1.1 million, respectively.  We significantly scaled back our level of capital investments in 2009 compared to 2008 as a result of the continued cost reduction effort started in the fourth quarter of 2008.   In 2007, net cash used in investing activities was the result of net purchases of marketable securities of $7.5 million; cash paid for acquisitions, net of cash received, of $2.9 million; and purchases of property and equipment of $1.5 million.
 
In August 2007, we acquired McGill Digital Solutions, Inc., now RNIN Canada, based in Windsor, Ontario, Canada.  We acquired the shares of McGill from the sellers for cash consideration of $3.2 million, subject to potential adjustments, and 50,000 shares of our common stock. We incurred $0.2 million in direct costs related to the acquisition. In addition, we agreed to pay earn-out consideration to the sellers of up to $1.0 million (CAD) and 50,000 shares of our common stock if specified earn-out criteria were met in 2008 and 2007.  The 2008 and 2007 earn-out criteria were not met and no earn-out was paid for either year.
 
Financing Activities
 
We have financed our operations primarily through sales of common stock and the issuance of notes payable to vendors, shareholders and investors. For the years ended December 31, 2009, 2008 and 2007, we generated a net $7.1 million, $0.5 million and $27.7 million from financing activities, respectively.
 
In November 2009, we sold approximately 2.6 million shares of our common stock at $2.90 per share pursuant to a registration statement on Form S-3, which was declared effective by the SEC in September 2009.  We obtained approximately $6.9 million in net proceeds as a result of this registered direct offering. We also received $0.1 million during 2009 from the sale of approximately 83,000 shares of common stock to our associates through our 2007 Associate Stock Purchase Plan.  We also received approximately $0.1 million from the exercise of outstanding stock options and warrants.  Our restricted cash balance was reduced by $0.1 million in 2009 related to our letter of credit discussed below. We used $0.1 million in the payment of capital leases.
 
During 2008, we received $0.2 million from the sale of approximately 143,000 shares of common stock to our associates through our 2007 Associate Stock Purchase Plan.  We received $0.4 million from the exercise of outstanding warrants.  We used approximately $0.1 million in the payment of capital leases.
 
In June 2007, we sold approximately 4.3 million shares and a selling shareholder sold 1.0 million shares of our common stock at $7.00 per share pursuant to a registration statement on Form SB-2, which was declared effective by the SEC in June 2007. We obtained approximately $27.1 million in net proceeds as a result of this follow-on offering.  We also received $1.2 million from the exercise of outstanding warrants and stock options during 2007.  In April 2007, we invested $50,000 in a bank certificate of deposit that was required for our bank’s credit card program. This cash is classified as restricted cash on our balance sheet.  We also deposited $0.4 million of cash in a bank as collateral for a letter of credit issued to support the landlord’s upfront investments totaling $0.5 million in connection with a new lease for office space. The collateral is reduced over time as the letter of credit is reduced. The term of the letter of credit is 31 months.  The amount held as collateral as of December 31, 2009 was $0.3 million.
 
Disruptions in the economy and constraints in the credit markets have caused companies to reduce or delay capital investment.  Some of our prospective customers may cancel or delay spending on the development or roll-out of capital and technology projects with us due to the economic downturn.  Furthermore, the downturn has adversely affected certain industries in particular, including the automotive and restaurant industries, in which we have major customers.  We could also experience lower than anticipated order levels from current customers, cancellations of existing but unfulfilled orders, and extended payment or delivery terms.  The economic crisis could also materially impact us through insolvency of our suppliers or current customers.  While we have down-sized our operations to reflect the decrease in demand, we may not be successful in mirroring current demand.

As of December 31, 2009, Chrysler (BBDO Detroit/Windsor) accounted for 42% of our total accounts receivables. In April 2009, Chrysler LLC and twenty-four of its affiliated subsidiaries filed a consolidated petition for Chapter 11 Bankruptcy Protection with the U.S. Federal Bankruptcy court in New York City.  While Chrysler LLC has emerged from bankruptcy and we continue to receive orders, our revenues were significantly impacted in 2009 compared to the prior year (see Note 10 to our Consolidated Financial Statements regarding Segment Information and Major Customers.)  In addition, Chrysler’s advertising agency, BBDO Detroit, closed its office at the end of January 2010.  Chrysler has subsequently moved its advertising relationship to another firm, which is not currently a customer of ours.  Of the $0.7 million total revenue recognized in 2009 from both Chrysler and BBDO Detroit, approximately 59% was transacted through BBDO Detroit.  We cannot presently determine what impact Chrysler’s decision to changes its advertising agency may have on any of the existing projects we are currently working on or future opportunities we may have with Chrysler and its affiliates.  In the case of insolvency by one of our significant customers, an account receivable with respect to that customer might not be collectible, might not be fully collectible, or might be collectible over longer than normal terms, each of which could adversely affect our financial position.
 
Based on our current and anticipated expense levels and our existing capital resources, we anticipate that our cash will be adequate to fund our operations through 2010. Our future capital requirements, however, will depend on many factors, including our ability to successfully market and sell our products, develop new products and establish and leverage our strategic partnerships and business alliance relationships. In order to meet our needs should we not become cash flow positive or should we be unable to sustain positive cash flow, we may be required to raise additional funding through public or private financings, including equity financings. Any additional equity financings may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants.   Furthermore, we agreed with the investors in our November 2009 public offering of common stock that, without obtaining the prior consent of investors purchasing a majority of the shares in such offering, and subject to certain exceptions, we would not issue shares of our common stock, or securities exercisable, exchangeable or convertible into our common stock, at a price per share less than $2.90 for a period of 180 days following the closing of such offering.  Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us, especially with credit markets which continue to risk adverse.  If adequate funds are not available, our plans to expand our business may be adversely affected and we could be required to curtail our activities significantly.  We may need additional funding in the future.  Necessary funding may not be available on terms that are favorable to the company, if at all.
 
 
 
Off Balance Sheet Arrangements
 
It is not our business practice to enter into off-balance sheet arrangements.
 
Contractual Obligations
 
Although we have no material commitments for capital expenditures, we anticipate continued capital expenditures consistent with our anticipated growth in operations, infrastructure and personnel.  Unless we experience a significant increase to our revenues, we expect our 2010 operating expenses will remain at levels similar to 2009 as we continue to control expenses in the current economic environment.
 
Operating and Capital Leases
 
At December 31, 2009, our principal commitments consisted of long-term obligations under operating leases.  We conduct our U.S. operations from a leased facility located at 5929 Baker Road in Minnetonka, Minnesota.  We lease approximately 19,000 square feet of office and warehouse space under a lease that extends through January 31, 2013.  In addition, we lease office space of approximately 10,000 square feet to support our Canadian operations at a facility located at 4510 Rhodes Drive, Suite 800, Windsor, Ontario, Canada under a lease that extends through June 30, 2014.  The following table summarizes our obligations under contractual agreements as of December 31, 2009 and the time frame within which payments on such obligations are due (in thousands):

   
Payment Due by Period
 
 Contractual Obligations
 
Total
   
Less Than
1 Year
   
1-3 Years
   
3-5 Years
   
More Than
5 Years
 
 Operating Lease Obligations
    868       262       577       29       -  
 Total
  $ 868     $ 262     $ 577     $ 29     $ -  


Based on our working capital position at December 31, 2009, we believe we have sufficient working capital to meet our current obligations.
 
Recent Accounting Pronouncements
 
In April 2009, the FASB issued “FASB ASC 820-10-50” Fair Value Measurement and Disclosures.   FASB ASC 820-10-50 requires disclosures about fair value of financial instruments whenever summarized financial information for interim reporting periods is presented.  Entities must disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions, if any, during the period.  FASB ASC 820-10-50 is effective for interim reporting periods ending after June 15, 2009.  FASB ASC 820-10-50 is effective for our quarter ending June 30, 2009.  The adoption did not have a material impact on our financial statements.
 
In April 2009, the FASB issued “FASB ASC 820-10-35” Fair Value Measurement and Disclosure and Subsequent Measurement, which provides additional guidance for estimating fair value when the volume and level of market activity for an asset or liability have significantly decreased.  FASB ASC 820-10-35 emphasizes that even if there has been a significant decrease in the volume and level of market activity for an asset or liability and regardless of the valuation techniques used, the objective of a fair value measurement remains the same.  In addition, the statement provides guidance on identifying circumstances that indicate a transaction is not orderly. FASB ASC 820-10-35 is effective for interim and annual periods ending after June 15, 2009.  The adoption did not have a material impact on our financial statements.
 
In April 2009, the FASB issued “FASB ASC 320-10-35,” Recognition and Presentation of Other-Than-Temporary Impairments.  FASB ASC 320-10-35 amends the other-than-temporary impairment (OTTI) guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of OTTI on debt and equity securities in the financial statements. This statement does not amend existing recognition and



measurement guidance related to OTTI of equity securities.  FASB ASC 320-10-35 requires that an entity disclose information for interim and annual periods that enables users of its financial statements to understand the types of available-for-sale and held-to maturity debt and equity securities held, including information about investments in an unrealized loss position for which an OTTI has or has not been recognized.  FASB ASC 320-10-35 is effective for interim and annual reporting periods ending after June 15, 2009.  The adoption did not have a material impact on our financial statements.
 
During May 2009, the FASB issued “FASB ASC 855-10,” Subsequent Events.  FASB ASC 855-10 requires us to evaluate subsequent events through the date that the financial statements are available to be issued and disclose in the notes the date through which we evaluated subsequent events and whether the financial statements were issued or were available to be issued on the disclosed date.  FASB ASC 855-10 defines two types of subsequent events, as follows:  the first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet and the second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  FASB ASC 855-10 is effective for interim and annual periods ending after June 15, 2009.  In February 2010, the FASB amended ASC 855-10 for certain provisions related Securities and Exchange Commission filers.  The amendment provides that Securities and Exchange Commission filers are not required to disclose the date through which subsequent events have been evaluated.  The adoption did not have a material impact on our financial statements.
 
In December 2008, the FASB issued “FASB ASC 715-60,” Employers’ Disclosure about Postretirement Benefit Plan Assets.  FASB ASC 715-60 provides additional guidance on employers’ disclosures about the plan assets of defined benefit pension or other postretirement plans.   FASB ASC 715-60 requires disclosures about how investment allocation decisions are made, the fair value of each major category of plan assets, valuation techniques used to develop fair value measurements of plan assets, the impact of measurements on change of plan assets when using significant unobseverable inputs, and significant concentrations of risk in the plan assets.  These disclosures are required for fiscal years ending after December 15, 2009.  We do not currently offer a defined benefit pension or other postretirement plan and therefore the adoption of this pronouncement did not have a material impact on our financial statements.
 
In June 2009, the FASB approved the “FASB Accounting Standards Codification” (“Codification”), as the single source of authoritative U.S. GAAP for all non-governmental entities, with the exception of the SEC and its staff.   The Codification, which launched July 1, 2009, changes the referencing and organization of accounting guidance and is effective for interim and annual periods ending after September 15, 2009.  Since it is not intended to change or alter existing U.S. GAAP, the Codification did not have any impact on our financial condition or results of operations. We adopted this presentation during the third quarter of 2009 and no longer refer to specific U.S. GAAP statements within our financial statements.
 
In June 2009, the FASB issued “FASB ASC 860-10-05-3,” Accounting for Transfers of Financial Assets.  FASB ASC 860-10-05-3 amends the guidance on transfers of financial assets, including securitization transactions where entities have continued exposure to risks related to transferred financial assets.  ASC 860-10-05-3 also expands the disclosure requirements for such transactions.  This statement will become effective for us in fiscal year 2010.  We are currently evaluating the impact that the adoption of this standard will have on our financial statements.
 
In June 2009, the FASB issued “FASB ASC 810-10-05-8,” Consolidation of Variable Interest Entities.   This statement will become effective for us in fiscal year 2010.  We are currently evaluating the impact that the adoption of this standard will have on our financial statements.
 
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning January 1, 2011, with earlier adoption permitted.  Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software enabled products will instead be subject to the other relevant revenue recognition guidance.  Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor-specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method.  The new guidance includes new disclosure requirements on how the application of the relative selling method affects the timing and amount of revenue recognition.  We believe adoption of this new guidance will not have a material impact on our financial statements.
 
 
 
Subsequent Events
 
In March 2010, we entered into a Loan and Security Agreement with Silicon Valley Bank (the “Loan and Security Agreement”).  The Loan and Security Agreement provides us with a revolving line-of-credit up to $2.5 million at an interest rate of prime plus 1.5%.  The amount available to us at any given time is the lesser of (a) $2.5 million, or (b) the amount available under our borrowing base (75% of our eligible accounts receivable plus 50% of our eligible inventory) minus (1) the dollar equivalent amount of all outstanding letters of credit, (2) 10% of each outstanding foreign exchange contract, (3) any amounts used for cash management services, and (4) the outstanding principal balance of any advances.  While there are outstanding credit extensions (other than our outstanding lease letter of credit), we must maintain a minimum tangible net worth as follows:  March 18, 2010 through June 30, 2010 ($10,500,000); July 1, 2010 through December 31, 2010 ($8,500,000); and January 1, 2011 and thereafter ($7,500,000).  These tangible net worth minimums increase (a) quarterly by 75% of our net income for each fiscal quarter then ended and (b) by 75% of the proceeds from our issuances of equity after March 18, 2010 and/or the principal amount of subordinated debt.  We generally require the prior written consent of Silicon Valley Bank to, among other things, (a) dispose of assets, (b) change our business, (c) liquidate or dissolve, (d) change CEO or COO (replacements must be satisfactory to the lender), (e) enter into any transaction in which our shareholders who were not shareholders immediately prior to such transaction own more than 40% of our voting stock (subject to limited exceptions) after the transaction, (f) merge or consolidate with any other person, (g) acquire all or substantially all of the capital stock or property of another person, or (h) become liable for any indebtedness (other than permitted indebtedness).  The Loan and Security Agreement matures on March 17, 2011.
 
In connection with our entry into the Loan and Security Agreement, we granted Silicon Valley Bank (a) a general, first-priority security interest in all of our assets, equipment and inventory under the Loan and Security Agreement, (b) a security interest in all of our intellectual property under an Intellectual Property Security Agreement, and (c) a security interest in all of the stock of Wireless Ronin Technologies (Canada), Inc., our wholly-owned subsidiary, under a Stock Pledge Agreement.  In addition, on March 18, 2010, we issued Silicon Valley Bank a 10-year warrant to purchase up to 41,391 shares of our common stock at an exercise price of $2.90 per share, as additional consideration for the Loan and Security Agreement.
 
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivables. We maintain our accounts for cash and cash equivalents principally at one major bank. As of December 31, 2009, our cash was primarily invested in a commercial paper sweep account as the interest rate yield was favorable than those of United States government securities and money market funds.  We have not experienced any significant losses on our deposits of our cash, cash equivalents, or marketable securities.
 
We do not believe our operations are currently subject to significant market risks for interest rates or other relevant market price risks of a material nature.
 
Foreign exchange rate fluctuations may adversely impact our consolidated financial position as well as our consolidated results of operations. Foreign exchange rate fluctuations may adversely impact our financial position as the assets and liabilities of our Canadian operations are translated into U.S. dollars in preparing our consolidated balance sheet. These gains or losses are recognized as an adjustment to shareholders’ equity through accumulated other comprehensive income.

 
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
See Index to Consolidated Financial Statements on Page F-1.
 
 
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2009, our disclosure controls and procedures were effective.
 
Management’s Annual Report On Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
·  
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
·  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 
·  
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that as of December 31, 2009, our internal control over financial reporting is effective based on those criteria.
 
 
 
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B
OTHER INFORMATION
 
           None.
PART III
 
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
We incorporate by reference the information contained under the captions “Proposal 1 – Election of Directors,” “Our Board of Directors and Committees” and  “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Part I of this Annual Report on Form 10-K under separate caption.
 
We have adopted a Code of Business Conduct and Ethics that is applicable to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions) and directors.  Our Code of Business Conduct and Ethics satisfies the requirements of Item 406(b) of Regulation S-K and applicable NASDAQ Marketplace Rules.  Our Code of Business Conduct and Ethics is posted on our internet website at www.wirelessronin.com and is available, free of charge, upon written request to our Chief Financial Officer at 5929 Baker Road, Suite 475, Minnetonka, MN 55345.  We intend to disclose any amendment to or waiver from a provision of our Code of Business Conduct and Ethics that requires disclosure on our website at www.wirelessronin.com.
 
ITEM 11
EXECUTIVE COMPENSATION
 
           We incorporate by reference the information contained under the captions  “Non-Employee Director Compensation” and “Executive Compensation” in our definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
           We incorporate by reference the information contained under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
We incorporate by reference the information contained under the captions “Our Board of Directors and Committees” and “Certain Relationships and Related Transactions” in our definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 
 
 
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
We incorporate by reference the information contained under the caption “Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm” in our definitive proxy statement for the annual meeting of shareholders to be held June 10, 2010.
 
PART IV
 
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)  
See “Index to Consolidated Financial Statements” on page F-1 and “Exhibit Index” on page E-1.
(b)  
See “Exhibit Index” on page E-1.
(c)  
Not applicable.


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minnetonka, State of Minnesota, on March 26, 2010.
 
Wireless Ronin Technologies, Inc.

By:    /s/  James C. Granger                                                                
James C. Granger
President and Chief Executive Officer
(Principal Executive Officer)



In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the date indicated.
 
Signature
 
Title
 
Date
 
     
/s/  James C. Granger                                    
      James C. Granger
 
 
President, Chief Executive Officer and Director (Principal Executive Officer)
March 26, 2010
/s/  Darin P. McAreavey
      Darin P. McAreavey
 
Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
March 26, 2010
/s/  Gregory T. Barnum                                                      
      Gregory T. Barnum
 
Chairman of the Board of Directors
March 26, 2010
/s/ Stephen F. Birke                           
      Stephen F. Birke
 
Director
March 26, 2010
/s/  Thomas J. Moudry
      Thomas J. Moudry
 
Director
March 26, 2010
/s/  Geoffrey J. Obeney
      Geoffrey J. Obeney
 
Director
March 26, 2010
/s/  William F. Schnell
      William F. Schnell
 
Director
March 26, 2010
/s/  Brett A. Shockley
      Brett A. Shockley
Director
March 26, 2010


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
Wireless Ronin Technologies, Inc.
Report of Independent Registered Public Accounting Firm
 
F-2
Consolidated Financial Statements
   
Consolidated Balance Sheets
 
F-3
Consolidated Statements of Operations
 
F-4
Consolidated Statements of  Shareholders’ Equity (Deficit)
 
F-5
Consolidated Statements of Cash Flows
 
F-6
Notes to Consolidated Financial Statements
 
F-7




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders, Audit Committee and Board of Directors
Wireless Ronin Technologies, Inc.
Minnetonka, Minnesota

We have audited the accompanying consolidated balance sheets of Wireless Ronin Technologies, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for the years ended December 31, 2009, 2008 and 2007.  These consolidated financial statements are the responsibility of the company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of the Company’s internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wireless Ronin Technologies, Inc. as of December 31, 2009 and 2008 and the results of its operations and cash flows for the years ended December 31, 2009, 2008 and 2007, in conformity with U.S. generally accepted accounting principles.

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota
March 24, 2010



F-2
 
 
 
WIRELESS RONIN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)



   
December 31,
   
December 31,
 
   
2009
   
2008
 
ASSETS
 
 CURRENT ASSETS
           
 Cash and cash equivalents
  $ 12,273     $ 5,294  
 Marketable securities - available for sale
    -       8,301  
 Accounts receivable, net of allowance of $51 and $92
    1,096       1,823  
 Income tax receivable
    -       12  
 Inventories
    185       462  
 Prepaid expenses and other current assets
    151       265  
 Total current assets
    13,705       16,157  
 Property and equipment, net
    1,242       1,918  
 Restricted cash
    380       450  
 Other assets
    20       35  
 TOTAL ASSETS
  $ 15,347     $ 18,560  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 CURRENT LIABILITIES
               
 Current maturities of long-term obligations
  $ -     $ 71  
 Accounts payable
    976       1,068  
 Deferred revenue
    362       181  
 Accrued liabilities
    251       1,067  
 Total current liabilities
    1,589       2,387  
                 
 COMMITMENTS AND CONTINGENCIES
               
                 
 SHAREHOLDERS' EQUITY
               
 Capital stock, $0.01 par value, 66,667 shares authorized
               
 Preferred stock, 16,667 shares authorized, no shares issued
               
 and outstanding
    -       -  
 Common stock, 50,000 shares authorized; 17,614 and
               
 14,850 shares issued and outstanding
    176       148  
 Additional paid-in capital
    88,371       80,650  
 Accumulated deficit
    (74,395 )     (64,212 )
 Accumulated other comprehensive loss
    (394 )     (413 )
 Total shareholders' equity
    13,758       16,173  
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 15,347     $ 18,560  





See accompanying Notes to Consolidated Financial Statements.
F-3
 
 
 

WIRELESS RONIN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

                   
   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
 Sales
                 
 Hardware
  $ 1,878     $ 2,479     $ 3,298  
 Software
    710       876       598  
 Services and other
    2,421       4,026       2,089  
 Total sales
    5,009       7,381       5,985  
 Cost of sales
                       
 Hardware
    1,504       2,193       2,287  
 Software
    21       247       1  
 Services and other
    2,018       4,084       1,531  
 Inventory lower of cost or market
    43       65       73  
 Total cost of sales (exclusive of depreciation and amortization shown separately below)
    3,586       6,589       3,892  
 Gross profit
    1,423       792       2,093  
 Operating expenses:
                       
 Sales and marketing expenses
    2,520       3,999       2,805  
 Research and development expenses
    2,167       2,541       1,198  
 General and administrative expenses
    6,168       11,258       8,049  
 Depreciation and amortization expense
    771       1,226       652  
 Impairment of network equipment held for sale
    -       1,766       -  
 Impairment of intangible assets
    -       1,265       -  
 Termination of partnership agreement
    50       50       704  
 Total operating expenses
    11,676       22,105       13,408  
 Operating loss
    (10,253 )     (21,313 )     (11,315 )
 Other income (expenses):
                       
 Interest expense
    (6 )     (22 )     (40 )
 Interest income
    76       647       1,278  
 Other
    -       (4 )     (9 )
 Total other income
    70       621       1,229  
 Net loss
  $ (10,183 )   $ (20,692 )   $ (10,086 )
 Basic and diluted loss per common share
  $ (0.67 )   $ (1.41 )   $ (0.82 )
 Basic and diluted weighted average shares outstanding
    15,274       14,664       12,314  



See accompanying Notes to Consolidated Financial Statements.
F-4
 

WIRELESS RONIN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(in thousands, except per share amounts)


                             
Accumulated
       
                 
Additional
         
Other
   
Total
 
     
Common Stock
   
Paid-In
   
Accumulated
   
Comprehensive
   
Shareholders'
 
     
Shares
   
Amount
   
Capital
   
Deficit
   
Income (loss)
   
Equity (Deficit)
 
 Balances at December 31, 2006
    9,826     $ 98     $ 49,056     $ (33,434 )   $ 17     $ 15,737  
 
 Net loss
    -       -       -       (10,086 )     -       (10,086 )
 
 Unrealized loss on investments
    -       -       -       -       (11 )     (11 )
 
 Foreign currency translation gain
    -       -       -       -       315       315  
 
 Total comprehensive loss
                                            (9,782 )
 
 Stock-based compensation
    -       -       1,167       -       -       1,167  
 
 Exercise of options and warrants
    372       4       1,157       -       -       1,161  
 
 Common stock issued for acquisition
    50       -       312       -       -       312  
 
 Proceeds from the sale of common stock, less offering costs
    4,290       43       27,050       -       -       27,093  
 Balances at December 31, 2007
    14,538       145       78,742       (43,520 )     321       35,688  
 
 Net loss
    -       -       -       (20,692 )     -       (20,692 )
 
 Unrealized loss on investments
    -       -       -       -       (1 )     (1 )
 
 Foreign currency translation loss
    -       -       -       -       (733 )     (733 )
 
 Total comprehensive loss
                                            (21,426 )
 
 Stock-based compensation
    -       -       1,313       -       -       1,313  
 
 Restricted stock issued under equity incentive plan
    6       1       -       -       -       1  
 
 Exercise of options and warrants
    163       1       371       -       -       372  
 
 Common stock issued under associate stock
    143       1       224       -       -       225  
 Balances at December 31, 2008
    14,850       148       80,650       (64,212 )     (413 )     16,173  
 
 Net loss
    -       -       -       (10,183 )     -       (10,183 )
 
 Foreign currency translation loss
    -       -       -       -       19       19  
 
 Total comprehensive loss
                                            (10,164 )
 
 Stock-based compensation
    -       -       698       -       -       698  
 
 Restricted  and common stock issued under equity incentive plan
    30       -       -       -       -       -  
 
 Exercise of options and warrants
    36       1       60       -       -       61  
 
 Common stock issued under associate stock purchase plan
    83       1       86                       87  
 
 Proceeds from the sale of common stock, less offering costs
    2,615       26       6,877       -       -       6,903  
 Balances at December 31, 2009
    17,614     $ 176     $ 88,371     $ (74,395 )   $ (394 )   $ 13,758  

See accompanying Notes to Consolidated Financial Statements.
F-5
 
 
 
WIRELESS RONIN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)


 
                   
   
For the Years Ended December 31,
 
   
2009
   
2008
   
2007
 
 Operating Activities:
                 
 Net loss
  $ (10,183 )   $ (20,692 )   $ (10,086 )
 Adjustments to reconcile net loss to net cash used in operating activities
                       
 Depreciation and amortization
    771       702       437  
 Amortization of acquisition-related intangibles
    -       524       215  
 Impairment of intangible assets
    -       1,265       -  
 Impairment of network equipment held for sale
    -       1,766       -  
 Loss on disposal of property and equipment
    53       73       37  
 Allowance for doubtful receivables
    (41 )     7       61  
 Stock-based compensation expense
    698       1,313       1,167  
 Change in operating assets and liabilities, net of acquisitions:
                       
 Accounts receivable
    828       (173 )     (2,464 )
 Corporate income taxes
    14       189       50  
 Inventories
    275       182       (283 )
 Prepaid expenses and other current assets
    72       (63 )     (599 )
 Other assets
    18       1       3  
 Accounts payable
    (107 )     (272 )     411  
 Deferred revenue
    180       (6 )     1,065  
 Accrued liabilities
    (825 )     274       336  
 Net cash used in operating activities
    (8,247 )     (14,910 )     (9,650 )
 Investing activities
                       
 Cash paid for acquisitions, net of cash received
    -       -       (2,877 )
 Purchases of property and equipment
    (133 )     (1,051 )     (1,472 )
 Purchases of marketable securities
    (22 )     (28,662 )     (28,302 )
 Sales of marketable securities
    8,323       35,018